SINO-SOVIET BLOC ECONOMIC ACTIVITIES IN UNDERDEVELOPED AREAS 1 JULY-31 DECEMBER 1960

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP92B01090R000400010011-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 48
• Document Creation Date: December 19, 2016
• Document Release Date: January 25, 2006
• Sequence Number: 11
• Publication Date: February 28, 1961
• Content Type: REPORT

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SECRET I
ECONOMIC INTELLIGENCE REPORT
SINO-SOVIET BLOC ECONOMIC ACTIV
IN UNDERDEVELOPED AREAS
1 JULY - .1 DECEMBER 1960
EIC R14-S10
?8 February 1961
ECONOMIC INTELLIGENCE COMM!
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SECRET
ECONOMIC INTELLIGENCE REPORT
SINO-SOVIET BLOC ECONOMIC ACTIVITIES
IN UNDERDEVELOPED AREAS
1 JULY - 31 DECEMBER 1960
EIC R14-S1O
28 February 1961
ECONOMIC INTELLIGENCE COMMITTEE
SECRET
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FOREWORD
The reports on Sino-Soviet Bloc economic activities in underdev-lope,
areas in the EIC-Rl1+ series provide periodic summaries and analytic:3.l
interpretations of significant developments in the economic relatiois o'
Bloc countries with underdeveloped countries of the Free World- Those
developments are reported on a current, factual basis in the 2iweek_y
Reports in the EIC-WGR-l series, under the same title.
This report, covering the 6 months from 1 July through 31 Decemjer
1960, constitutes the tenth periodic supplement to EIC-R14, the back-
ground report on Sino-Soviet Bloc Postwar Economic Activities in Unc:.er-
developed Areas, 8 August 1956, SECRET. The present supplement relstes
noteworthy noneconomic activities, including military aid, to the eco-
nomic operations of the Bloc in underdeveloped countries in order tc
place the economic aspects in the perspective of the over-all programs
of the Bloc in these countries. This report was prepared by a Working
Group of the Economic Intelligence Committee, including representatives
of the Departments of State, the Army, the Navy, the Air Force, Commerce,
and Agriculture; the International Cooperation Administration; the Gffic'
of the Secretary of Defense; the National Security Agency; and the C:-~n-
tral Intelligence Agency. It was approved by the Economic Intelligence
Committee on 15 February 199E61.
For purposes of this report, the term underdeveloped areas _nclu,ies
the following Free World countries: (1) all independent countries ii
Latin America; (2) all countries in the Middle East, including Afghan-
istan, Cyprus, Greece, Pakistan, Turkey, and the United Arab Rpubli.?
(Egypt and Syria); (3) all independent countries in Africa, except the
Union of South Africa; (it) all countries in South and Southeas-, Asia:
and (5) Iceland, Portugal., Spain, and Yugoslavia.
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CONTENTS
'
. a: ;e
Summary . . . . . . . . . . . . . . . . . . . . . . . . . .
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SINO-SOVIET BLOC ECONOMIC ACTIVITIES IN UNDERDEVELOPED AREAS
I -JULY - 31 DECEMBER 1960
Summary
The Moscow-Peiping Dispute
A notable development during the period under review was the articu-
lation of Moscow's dispute with Peiping over the correct strategy tc be
pursued in the world Communist struggle. An important element in the
dispute that dates back to 1957 is whether, in light of the present
state of affairs in underdeveloped countries, the Bloc should rely pri-
marily on collaboration with the nationalistic and non-Communist leaiers
of those countries or whether greater emphasis should be given to direct
revolutionary action against such leadership.
In general, the Chinese Communists have objected to large =kale
Soviet economic and political support for bourgeois -- that is, non-
Communist -- governments. They have argued that such aid retards the
development of more revolutionary forces and, at least in some cases,
assists governments with which they are at odds. Nevertheless, Peiping
has followed a far less rigid policy in dealings with other Asian co-in-
tries when China's national interests were at stake. There appears .o
be no disagreement between Moscow and Peiping about the desirability of
providing strong support for regimes, such as Castro's, which follow
pro-Bloc foreign and pro-Communist domestic policies.
It is difficult to forecast precisely what effect the Moscow-Peiping
dispute will have on the future course of the Soviet economic offensive
in underdeveloped areas. Although Soviet foreign aid programs may b~'
subject to modification, they probably will not change drastically a!.
long as Khrushchev and his supporters maintain a dominant position ipi
the Bloc.
Patterns and Prospects
Bloc penetration of the underdeveloped areas continued apace through.
out the last half of 1960. For most of the period under review, Latn
America and Africa were the principal regions in which the Bloc's ne-r
efforts were concentrated. Late in the year, however, Southeast Asia
also received priority attention.
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Military assistance once again became an important device for ex-
tending Soviet influence. Mainly as the result of a continuing program
to provide its own armed forces with more modern equipment and also
because of past reductions in the size of its military establishment,
the USSR has long been accumulating a sizable stock of earlier models
with which it has been implementing its arms diplomacy in key areas.
Starting early in the year, the USSR resumed large-scale credit sales
of military items to countries that had made substantial purchases in
the past and also tried to persuade other countries to outfit at least
some of their military forces with Soviet equipment. These sales and
offers grew in volume as the year progressed.
Ariother notable feature of the Bloc foreign economic program has
been the Soviet attempt to penetrate Western oil markets in under-
developed areas, an attempt. that became more vigorous during the last
half of 1960. Soviet offers to sell petroleum and petroleum products
were welcomed by many countries because they provided an opportunity
both to reduce their outlay for essential imports by paying lower
prices and to save foreign exchange by acquiring such imports through
barter deals.
A`'clttiough the USSR has sizable export commitments, its oil produc-
tion is sufficient to permit a substantial increase in sales. Moreover,
Lt is accelerating the expansion of its tanker fleet by purchasing
ships., :in Western Europe and Japan in an effort to decrease its depend-
ence on Western charter vessels.
tf greater potential impact in the long run is the Soviet program
to provide educational assistance for students from underdeveloped
countries. In spite of occasional expressions of discontent by some
foreign students studying at Soviet institutions, the USSR has inten-
sified its efforts to attract more students from underdeveloped coun-
tries. The Kremlin, however, has given indications that it expects to
exercise more effective control over their educational environment.
As part of a program to advance these aims, the USSR has offered more
scholarships and has established a special institution of higher learn-
ing in Moscow, the University of Peoples Friendship, primarily to accom-
modate students from underdeveloped countries. The new university
opened in October 1960, and enrollment was estimated to be 500 for the
academic year 1960/61. A student body of 3,000 or more was projected
for 1965.
propaganda activities during the last half of 1960 continued to
serve as an integral part of the Bloc penetration program. Radiobroad-
casting services, the spearhead of these efforts, expanded in time,
language, and area coverage. The Bloc also encouraged the exchange of
films and television programs in an effort to utilize these media for
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propaganda purposes. By means of an aggressive promotional prograi
that features local-language editions at nominal prices, the Bloc cl-so
is distributing Communist books and. periodicals in many underdeveloped
countries. Such efforts are augmented by book fairs, gifts Df books,
and library exchanges.
Credits and Grants
During the last half of 1960 the Bloc extended more than $300 mil-
lion* in economic and military assistance to underdeveloped countries.
Military aid totaled $375 million, the largest amount extended by tie
Bloc during any 6-month period. Total Bloc financial assistance for
the full year 1960 stands at a record $1.5 billion. Although .4 under-
developed countries have received some form of financial assi"r;ance
from the Bloc, 9 countries -- the United Arab Republic (UAR), Indonesia
India, Iraq, Afghanistan, Cuba, Ethiopia, Guinea, and Argentina --
accounted for 90 percent of all credits and grants extended by the nd
of 1960.
Drawings on Bloc credits and grants amounted to about $95 million
during the period July-December 1960. Utilization of nonmilitary w .d
accounted for most of this sum. By the end of 1960, drawings on al-'
Bloc aid extended since 1954 totaled $1.6 billion, more than half o
which represented goods and services provided by the USSR.
Technical Assistance
About 7,900 Bloc technicians were present in underdeveloped coun-
tries in the last 6 months of 1960. This number included 6,500 eco-
nomic and 1,400 military specialists, about 850 more economic and
150 more military personnel than in the first 6 months of the year.
Large numbers of Bloc economic technicians were despatched during the
period under review, particularly to Africa and the Middle East. An
influx of Bloc military technicians into Cuba since mid-1960 account--d
for the rise in Bloc military personnel.
By the end of 1960, 11,700 nationals of underdeveloped coutrt.ries
had attended or were enrolled at training institutions in the 11:Loc.
Military personnel comprised 4,600 of this group, academic students
4,000, and technical trainees 3,000. The nine principal recipients
listed above were host to more than 75 percent of the Bloc technicians
present in underdeveloped. areas in the last half of 1960 and provided
more than 85 percent of the students from these areas who have studied
in the Bloc since 1955.
* Unless otherwise indicated, all dollar values in this report are =in
terms of US dollars.
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Trade
,bioc trade with underdeveloped countries during the first 6 months
of 1960 increased 20 percent above the level reached for the same
period in 1959. The Bloc not only exchanged a larger volume of goods
with these countries but also increased its relative share of their
total trade. Bloc imports expanded more than exports, with Chinese
Communist purchases showing a gain of more than 100 percent above the
level of the first 6 months of 1959.
Although increases were posted in Bloc trade with all underdeveloped
regions, commerce with Africa showed the largest relative gain, 105 per-
cent above the level reported for the first half of 1959. Exchanges
with Latin America rose by 50 percent, reflecting the growth in Bloc
economic ties with Cuba. Bloc trade with Asia and the Middle East ex-
panded by 15 and 10 percent, respectively.
The European Satellites continued as the major trading area in Bloc
commerce with underdeveloped countries. Communist China increased its
share to one-fifth of the total, a rise of 5 percent above its share
in the first half of 1959.
satin America
Throughout 1960, Bloc efforts in Latin America were dominated by
the growing partnership with Cuba. By December the Castro regime had
(1) decided to establish diplomatic relations with all Bloc regimes
except East Germany, (2) followed a UN voting pattern almost parallel
to that of the Soviet Bloc, and (3) issued public statements echoing
the Bloc's views on most issues. This growing Cuban-Bloc entente was
sharply reflected in the economic sphere. By mid-December, Cuba had
established a network of bilateral economic agreements with all Bloc
regimes except Albania. During 1960 the Bloc purchased about 40 per-
cent of Cuba's sugar exports, and trade agreements concluded late in
1960 indicate that this proportion may reach 65 percent in 1961. In
addition, the Bloc supplied all Cuban imports of POL during the second
half of 1960 and became a major source of many other commodities. The
USSR, Communist China, Czechoslovakia, and Hungary provided Cuba with
nonmilitary credits totaling $215 million for use in the construction
of 50 or more industrial plants. Bloc technicians made preliminary
surveys of the Cuban economy, and many held. key positions in various
Cuban economic agencies. Large-scale arms shipments provided a more
sinister aspect to Cuban-Bloc cooperation.
Besides Cuba the Bloc's most dramatic efforts were made in Bolivia.
In spite of the relative unimportance of previous Bolivian-Bloc rela-
tions, widely publicized Soviet offers to provide Bolivia with a tin
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smelter evoked a strong emotional response among many sectors of the
Bolivian populace and contributed to the political instability of that
country. Accordingly, the Bolivian Government felt forced to name an
economic mission to explore Soviet offers of aid.
Elsewhere in the hemisphere the Bloc pursued its program with con-
siderably less vigor. Bloc economic influence in the River Plate
countries continued to deteriorate throughout 1960. US aid and the
adoption of the economic reforms recommended by the International
Monetary Fund continued to reduce Uruguayan and Argentine interest
in Bloc trade. Argentina canceled its bilateral agreements with all
Bloc countries except the USSR, and commerce with the Bloc showed
little change from 1959. The Bloc's share of Uruguay's exports in
the first half of 1960 was only 10 percent compared with 28 percent.
in the corresponding period of 1959. The most significant decline
was noted in wool purchases, which dropped from 40 percent of Uruguay's
total wool sales in the 1958/59 season to 14+ percent in the 1959/6C
season. The USSR, Uruguay's number one customer in the 1958/59 season,
was inactive in the Uruguayan wool market in the 1959/60 season. tru-
guay appeared to be equally reluctant to buy Soviet goods. Soviet
efforts to obtain a long-term wool-petroleum barter agreement were re-
jected in spite of pressure from wool exporters. Among Bloc countries,
only Poland and Communist China remained as important Uruguayan trading
partners, the latter only in the capacity of importer.
During the last half of 1960-the Bloc was occupied in efforts to
deliver on its previous trade commitments to Brazil. Trade continued
to increase, as East Germany and Poland assumed a more important role
in the Bloc economic efforts. The last half of 1960, however, was
marked by the complete absence of new Bloc moves. Uncertainties o"er
the future policies of President-elect Quadros contributed to the
general cautiousness of the Bloc.
In other developments Ecuador reached an agreement with Czecho-
slovakia to barter bananas and coffee worth $630,000 for CzechosloY.ak
technical equipment. An Ecuadoran official stated that Czechoslovn.kia
was willing to extend credits up to $10 million. The USSR also ha.
renewed its efforts to expand trade with Chile, offering to exchange
petroleum for Chilean copper.
Middle East
In the Middle East, Bloc efforts were marked by modest prcgres.
on existing programs and the establishment of new lines of credit 7.o
Iraq and the UAR.
Although limited improvement was noted in Iraq's relations with
the West, Bloc economic ties with Iraq expanded during the last ha'f
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of 1960. Iraq signed a $70 million arms agreement with the USSR in
September and accepted a Czechoslovak credit of $33.6 million for in-
dustrial development projects. Although a few Soviet projects were
initiated during the period under review, many difficulties were en-
countered. On the one hand, Bloc technicians complained of Iraq's
procrastination in providing construction areas and general lack of
cooperation, and, on the other hand, Iraqi officials criticized the
Bloc's failure to deliver goods on schedule.
c'he UAR continued to maintain strong economic ties with the Bloc
in spite of last year's cooling in political relations between the two
areas. The Egyptian sector received a $14+.4 million credit from Hun-
gary for industrial development, and the Syrian sector a $2.8 million
credit from Czechoslovakia for the supply of equipment for municipal
and rural projects.
Implementation of outstanding Bloc credits was pressed in both
sectors of the UAR. In the Syrian sector, where utilization of the
1957 Soviet credit had been lagging, there was a sudden spurt of
activity. In September, contracts for a number of major projects were
awarded to the USSR, and technical studies were initiated. One of the
major agreements thus concluded was a contract for Soviet construction
of the Q,amishli-Latakia-Aleppo Railroad. In the Egyptian sector, work
on the Aswan High Dam appeared to be progressing on schedule. Delivery
of all the machinery and equipment for the first stage of construction
was expected to be completed by the end of 1960, and Soviet engineers
were working on plans for the second stage.
The USSR continued to exploit the Afghan desire for rapid economic
and social development. The high priority accorded to existing Bloc
efforts in Afghanistan and the vigorous implementation of Bloc projects,
particularly on such strategic projects as airfields and roads, appears
to have heightened Soviet prestige in that area. Major Soviet initia-
tives during the period also include (1) the entry into the field of
city planning and housing with purported agreements to provide advisers
to develop a 25-year rebuilding program for the city of Kabul and to
construct a large number of dwelling units, (2) the completion of the
Kabul airport project, and (3) the conclusion of contracts for construc-
tion of the Naghlu hydroelectric station and the Darunta irrigation
project.
No decision was reached on a Soviet offer to exploit, refine, and
market petroleum reserves discovered by the Bloc in northern Afghani-
stan. It appeared likely, however, that any such program would even-
tually become dependent on assistance from Moscow. The Bloc, through
the provision of material, training, and advisory services and the ex-
tensive construction of military facilities, remained the dominant
factor behind the buildup of the Afghan armed forces.
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The arrival in Moscow of a Pakistan economic delegation to discuss
an offer of Soviet assistance for petroleum development indicated a
shift in the policy of the Pakistan Government of avoiding economic
involvement with the Bloc. Soviet officials appeared to be w_iLling to
extend a long-term credit to be repaid in installments by the export,
of Pakistan commodities. The Pakistan team, among other negot at.ir.
objectives, hoped to induce the USSR to accept exports that cannot
readily be sold in the West.
No new Bloc credits were extended to Yemen, although there were
several offers during the review period. Meanwhile, the near -ompl-
tion of major Bloc projects carried out under previous credit:; adde,l
significantly to the internal propaganda impact of Bloc economic
assistance. Iran, determined to maintain its Western ties, remaine.i
unreceptive to a Soviet offer of substantial economic assistance.
Negotiations, however, were reported to be underway for Czechostovaic
assistance to a private company for the supply and installation of ~.n
ore-dressing plant. The provisional government of Turkey refrained
from taking up general offers of aid proffered by the USSR and Poland.
The Polish offers included a $4 million credit to build a borax and
boric acid plant.
The Greek Government continued to resist any large-scale ccllabr>-
ration with the Bloc, but internal pressure was building up for cloE;er
trade relations as a means of reducing large agricultural surpluses.
Commercial efforts also characterized Bloc approaches to Cyprus.
Government leaders indicated that, although they do not wish to accept
Soviet aid, they may accept help from any and all sources if the is,:and
economic situation should continue to deteriorate.
Africa became a major theater for Bloc economic activities durirg
the period under review. Its bold intervention in the Congo resulted
in a serious setback when its missions were expelled. Nevertheless.
it obviously had not written off the Congo as a profitable target.
Moreover, it scored major gains in Chana while further consolidating
its already strong position in Guinea. The rash of newly independert
countries provided a wealth of opportunities for the Bloc -- oppor-
tunities that it did not hesitate to exploit. Diplomatic and economic
missions were despatched quickly, and offers of trade and economic
assistance followed promptly. Of the newer nations, the Bloc achieved
a significant foothold only in Mali. Nevertheless, political and eco-
nomic forces operating in many of the new nations increased their re-
ceptivity to Bloc offers. of the established countries, Morocco and
Sudan accepted Bloc military aid and Tunisia accepted Bloc economic
credits, all for the first time.
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The pace of economic activity quickened in Guinea as the Bloc pur-
sued its objective of demonstrating the advantages of cooperation with
the Bloc. Bloc aid rose from $43 million to more than $108 million
during the period. The USSR provided an additional credit of $21.5 mil-
lion to finance several projects on the Konkoure River and other proj-
ects set forth in Guinea's economic development program. Peiping ex-
I.ended a $25 million interest-free credit payable in 10 years for other
projects in the development program. East Germany, Hungary, and Poland
extended developmental credits aggregating more than $12 million. Fol-
lowing Guinea's withdrawal from the franc zone, the Bloc assumed an in-
c:~reasingiy dominant position in Guinea's foreign trade. Bloc aid to
the Guinean military establishment also increased sharply. Three ship-
ments of Bloc arms arrived in the fall of 1960, some of which went to
Mali.
The Bloc took full advantage of Ghana's growing estrangement from
the West following the defeat of Nkrumah's Congo policy. A new era
in Bloc-Ghanaian economic collaboration begun in August with the signing
of three agreements covering trade, credit, and technical assistance
as well as the purchase of Soviet aircraft. A $4o million Soviet credit
repayable in 12 years at 2.5-percent interest may be used in part to
construct the Bui Dam. on the Black Volta River. This project could
undercut the much larger Volta River project that would be financed by
the West. The USSR also advanced a $6.7 million credit to purchase four
11-18 aircraft for Ghana Airways, and agreement in principle was reached
for the purchase of two more. The number of Soviet technicians in the
country increased to at least 120 during the period compared with a
mere handful in the previous 6 months.
Increased receptivity characterized Asian reactions to Bloc offers
of aia, trade, and technical assistance, but the degree of receptivity
varied widely. Some countries became less apprehensive over the pos-
sibility that economic involvement would necessarily lead to serious
dependence on the Bloc or other undesirable consequences.
Indonesia continued to look to the Bloc, particularly the USSR,
for further support for its military buildup and economic development
program. The USSR made a significant advance when, in September 1960,
preliminary arrangements were worked out for a $300 million line of
credit to Indonesia for large-scale modernization and training of its
armed forces. Moscow also moved quickly to implement Khrushchev's
February pledge of $250 million for economic development. Czechoslo-
vakia pledged a long-term credit for the purchase of capital goods,
and Poland, Hungary, and Bulgaria agreed to begin negotiations on the
extension of medium-term credits. Survey activities on new aid projects
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considerably increased the number of Bloc technicians assigned to
Indonesia. A new Soviet-Indonesian trade agreement provided for
tripling the value of exchanges between the two areas within the next
3 years.
Cambodia accepted substantial additional aid from the USSR, Czecho-
slovakia, and Communist China. Cambodian acceptance of credits ass-
.St-ance marked a significant departure from earlier policy. Trade with
the Bloc in 1960 appeared to be increasing sharply and may have more
than doubled the level in 1959.
India remained receptive to trade and aid offers from the USSR
and the European Satellites. Important developments included India?s
acceptance of a new $125 million credit to finance projects under its
Third Five Year Plan, the purchase by India of certain quasi-military
equipment, and the entry of the USSR into India's petroleum market.
It appeared likely that Burma would accept some Bloc assistance
in connection with its Four Year Plan for economic development. There
also were indications of a concerted Burmese effort to establish closer
ties with Communist China.* Trade with the Bloc, particularly with
Communist China, increased. It is expected to rise still further in
1961 as.a result of new trade arrangements. Bloc efforts in Thailand
continued to be limited to diplomatic activity and small commercial
trade, but Thai dissatisfaction with some US policies could contribute
to an improved climate in Thailand for Soviet activities.
Nepalese leaders continued to pursue an overtly neutralist foreign
policy while remaining apprehensive over internal and external Commu-
nist objectives. Nevertheless,, Communist influence in Nepal probably
increased somewhat during the period as relations between the govern-
ment of Nepal and the USSR and Communist China became somewhat close:-
The USSR offered to finance the construction of the trans-Nepal road,
and work on five Soviet projects proceeded close to schedule. Commu.
nist China presented gifts in the form of agricultural and medical
equipment, but there were no visible results of its aid program, which
dates back to 1956.
The Bloc, taking advantage of Ceylon's grave economic problems,
expanded its offers of aid and trade and expedited assistance under
existing agreements. Negotiations were resumed with Communist China
for the acquisition of a textile mill under the 1957 aid agreement.
Exports to the Bloc during the first 9 months increased 60 percent,
primarily as a result of stepped-up Bloc purchases of rubber.
* On 9 January 1961, Communist China extended to Burma an interest-free
credit of $84 million to be used for economic projects over a 6-year
period ending in September 1957.
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Europe
Floc economic relations with the underdeveloped countries of Europe
were limited to trade. Yugoslav-Bloc relations continued to be gen-
erally correct. Trade between the two areas expanded, but because of
the over-all increase in Yugoslavia's trade the Bloc accounted for no
greater proportion of Yugoslavia's total trade than it had in the pre-
ceding year. Five-year trade agreements coinciding with Yugoslavia's
new Five Year Plan were concluded with most Bloc countries, thus con-
tinuing a trend toward concluding longer term trade arrangements with
Moscow and its Satellites. There were no indications of discord in
Bloc-Yugoslav economic relations, but there also were no new offers of
economic assistance.
[celand's exchange stabilization program, initiated in March 1960,
significantly reduced imports from the Bloc. Exports to the Bloc also
declined appreciably. The Bloc, however, continued to provide Iceland
with a major outlet for its fish and fish products that cannot readily
be sold in the West. For the first time, Iceland succeeded in obtain-
ing a convertible currency clause in its trade arrangements with a
Bloc country when, in October 1960, a new. agreement was concluded with
Poland.
1.he Bloc made no significant progress in expanding economic rela-
tions with Spain or Portugal during 1960. Bloc trade with Portugal
continued to account for only a very small percentage of the total.
Spanish trade with the Bloc, also small, continued in 1960 at about
the same level as in previous years.
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SECRET
ECONOMIC INTELLIGENCE REPORT
SINO - SOVIET EI1OC ECONOMIC ACT":
IN UNDERDEVELOPED AREAS
1 JULY - 31 DECEMBER 1960
SUMMARY
(The complete text o? this report has been published set)
&C P14--S10
February 1961
ECONOMIC INTELLIGENCE COM
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FOREWORD
The reports on Sino-Soviet Bloc economic activities in under-
developed areas in the EIC-R14 series provide periodic summaries andi
analytical interpretations of significant developments in the economic
relations of Bloc countries with underdeveloped countries of the Free
World. These developments are reported on a current, factual basis in
the Biweekly Reports in the EIC-WGR-l series, under the same title.
This report, covering the 6 months from 1 July through 31 December
1960, constitutes the tenth periodic supplement to EIC-R14, the back"--
ground report on Sino-Soviet Bloc Postwar Economic Activities in
Underdeveloped Areas, T August 1956, SECRET. The present supplement.
relates noteworthy noneconomic activities, including military aid, 41.o
the economic operations of the Bloc in underdeveloped countries in
order to place the economic aspects in the perspective of the over-cLl1
programs of the Bloc in these countries. This report was prepared by
a Working Group of the Economic Intelligence Committee, including rep-
resentatives of the Departments of State, the Army, the Navy, the Air
Force, Commerce, and Agriculture; the International Cooperation Admn-
istration; the Office of the Secretary of Defense; the National Securit%
Agency; and the Central Intelligence Agency. It was approved by th,~
Economic Intelligence Committee on 15 February 1961.
For purposes of this report, the term underdeveloped area-; includes
the following Free World countries: (1) all independent countries to
Latin America; (2) all countries in the Middle East, including Afgh;tn-
istan, Cyprus, Greece, Pakistan, Turkey, and the United Arab Republic
(Egypt and Syria); (3) all independent countries in Africa, except the
Union of South Africa; (4) all countries in South and Southeast Asi.3.;
and (5) Iceland, Portugal, Spain, and Yugoslavia.
Included with this Summary are two charts* from the complete te-t
of EIC-R14-S10 -- Figure 4, Bloc Credits and Grants to Underdeveloped
Countries, January 1954 - December 1960, and Figure 5, Bloc Economi?,
and Military Technicians in Underdeveloped Countries, July-December
1960.
* Following p. 10.
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SINO-SOVIET BLOC ECONOMIC ACTIVITIES IN UNDERDEVELOPED AREAS
1 JULY - 31 DECEMBER 1960
Summary
The Moscow-Peiping Dispute
A notable development during the period under review was the articu-
lation of Moscow's dispute with Peiping over the correct strategy is be
pursued in the world Communist struggle. An important element in tae
dispute that dates back to 1957 is whether, in light of the present
state of affairs in underdeveloped countries, the Bloc should rely pri-
marily on collaboration with the nationalistic and non-Communist leaders
of those countries or whether greater emphasis should be given to direct
revolutionary action against such leadership.
In general, the Chinese Communists have objected to large-scale
Soviet economic and political support for bourgeois -- that is, nor.-
Communist -- governments. They have argued that such aid retards the
development of more revolutionary forces and, at least in some cases,
assists governments with which. they are at odds. Nevertheless. Peiping
has followed a far less rigid policy in dealings with other Asian csun-
tries when China's national interests were at stake. There appears to
be no disagreement between Moscow and Peiping about the desirability of
providing strong support for regimes, such as Castro's, which follow
pro-Bloc foreign and pro-Communist domestic policies.
It is difficult to forecast precisely what effect the Mos?.ow-Peiping
dispute will have on the future course of the Soviet economic offensive
in underdeveloped areas. Although Soviet foreign aid programs may se
subject to modification, they probably will not change drastically as
long as Khrushchev and his supporters maintain a dominant position in
the Bloc.
Patterns and Prospects
Bloc penetration of the underdeveloped areas continued apace tbroug
out the last half of 1960. For most of the period under review, Latin
America and Africa were the principal regions in which the Bloc's n--w
efforts were concentrated. Late in the year, however, Southeat Asia
also received priority attention.
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Military assistance once again became an important device for ex-
tending Soviet influence. Mainly as the result of a continuing program
to provide its own armed forces with more modern equipment and also
because of past reductions in the size of its military establishment,
the USSR has long been accumulating a sizable stock of earlier models
with which it has been implementing its arms diplomacy in key areas.
Starting early in the year, the USSR resumed large-scale credit sales
of military items to countries that had made substantial purchases in
the past and also tried to persuade other countries to outfit at least
some of their military forces with Soviet equipment. These sales and
offers grew in volume as the year progressed.
Another notable feature of the Bloc foreign economic program has
been the Soviet attempt to penetrate Western oil markets in under-
developed areas, an attempt that became more vigorous during the last
half of 1960. Soviet offers to sell petroleum and petroleum products
were welcomed by many countries because they provided an opportunity
both to reduce their outlay for essential imports by paying lower
prices and to save foreign exchange by acquiring such imports through
barter deals.
Although the USSR has sizable export commitments, its oil produc-
tion is sufficient to permit a substantial increase in sales. Moreover,
it is accelerating the expansion of its tanker fleet by purchasing
ships in. Western Europe and Japan in an effort to decrease its depend-
ence on Western charter vessels.
Of greater potential impact in the long run is the Soviet program
to provide educational assistance for students from underdeveloped
countries. In spite of occasional expressions of discontent by some
foreign students studying at Soviet institutions, the USSR has inten-
sified its efforts to attract more students from underdeveloped coun-
tries. The Kremlin, however, has given indications that it expects to
exercise more effective control over their educational environment.
As part of a program to advance these aims, the USSR has offered more
scholarships and has established a special institution of higher learn-
ing in Moscow, the University of Peoples Friendship, primarily to accom-
modate students from underdeveloped countries. The new university
opened in October 1960, and enrollment was estimated to be 500 for the
academic year 1960/61. A student body of 3,000 or more was projected
for 195.
Propaganda activities during the last half of 1960 continued to
serve as an integral part of the Bloc penetration program. Radiobroad-
casting services, the spearhead of these efforts, expanded in time,
language, and area coverage. The Bloc also encouraged the exchange of
films and television programs in an effort to utilize these media for
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propaganda purposes. By means of an aggressive promotional progran
that features local-language editions at nominal prices, the Bloc elso
is distributing Communist books and periodicals in many underdeveloped
countries. Such efforts are augmented by book fairs, gifts of books,
and library exchanges.
Credits and Grants
During the last half of 1960 the Bloc extended more than $800 r_il-
lion* in economic and military assistance to underdeveloped countries.
Military aid totaled $375 million, the largest amount extended by the
Bloc during any 6-month period. Total Bloc financial assistance for
the full year 1960 stands at a record $1.5 billion. Although 24 urder-
developed countries have received some form of financial assistance
from the Bloc, 9 countries -- the United Arab Republic (UAR), Indonesia,
India, Iraq, Afghanistan, Cuba, Ethiopia, Guinea, and Argentina --
accounted for 90 percent of all credits and grants extended by the end
of 1960.
Drawings on Bloc credits and grants amounted to about $95 million
during the period July-December 1960. Utilization of nonmilitary aid
accounted for most of this sum. By the end of 1960, drawings on all
Bloc aid extended since 1954 totaled $1.6 billion, more than half of
which represented goods and services provided by the USSR.
Technical Assistance
About 7,900 Bloc technicians were present in underdeveloped coun-
tries in the last 6 months of 1960. This number included 6,500 eco-
nomic and 1,400 military specialists, about 850 more economic and
150 more military personnel than in the first 6 months of the rear.
Large numbers of Bloc economic technicians were despatched during the
period under review, particularly to Africa and the Middle East. An
influx of Bloc military technicians into Cuba since mid-1960 accounted
for the rise in Bloc military personnel.
By the end of 1960, 11,700 nationals of underdeveloped countries
had attended or were enrolled at training institutions in the Bloc.
Military personnel comprised 4,600 of this group, academic students
4,000, and technical trainees 3,000. The nine principal recipients
listed above were host to more than 75 percent of the Bloc technicians
present in underdeveloped areas in the last half of 1960 and provid_=d
more than 85 percent of the students from these areas who have studied
in the Bloc since 1955.
* Unless otherwise indicated, all dollar values in this report are in
terms of US dollars.
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Bloc trade with underdeveloped countries during the first 6 months
of 1960 increased 20 percent above the level reached for the same
period in 1959. The Bloc not only exchanged a larger volume of goods
with these countries but also increased its relative share of their
total trade. Bloc imports expanded more than exports, with Chinese
Communist purchases showing a gain of more than 100 percent above the
level of the first 6 months of 1959.
Although increases were posted in Bloc trade with all underdeveloped
regions, commerce with Africa showed the largest relative gain, 105 per-
cent above the level reported for the first half of 1959. Exchanges
with Latin America rose by 50 percent, reflecting the growth in Bloc
economic ties with Cuba. Bloc trade with Asia and the Middle East ex-
panded by 15 and 10 percent, respectively.
The European Satellites continued as the major trading area in Bloc
commerce with underdeveloped countries. Communist China increased its
share to one-fifth of the total, a rise of 5 percent above its share
in the first half of 1959.
Latin America
Throughout 1960, Bloc efforts in Latin America were dominated by
the growing partnership with Cuba. By December the Castro regime had
(1) decided to establish diplomatic relations with all Bloc regimes
except East Germany, (2) followed a UN voting pattern almost parallel
to that of the Soviet Bloc, and (3) issued public statements echoing
the Bloc's views on most issues. This growing Cuban-Bloc entente was
sharply reflected in the economic sphere. By mid-December, Cuba had
established a network of bilateral economic agreements with all Bloc
regimes except Albania. During 1960 the Bloc purchased about 4+0 per-
cent of Cuba's sugar exports, and trade agreements concluded late in
1960 indicate that this proportion may reach 65 percent in 1961. In
addition, the Bloc supplied all Cuban imports of POL during the second
half of 1960 and became a major source of many other commodities. The
USSR, Communist China, Czechoslovakia, and Hungary provided Cuba with
nonmilitary credits totaling $215 million for use in the construction
of 50 or more industrial plants. Bloc technicians made preliminary
surveys of the Cuban economy, and many held key positions in various
Cuban economic agencies. Large-scale arms shipments provided a more
sinister aspect to Cuban-Bloc cooperation.
Besides Cuba the Bloc's most dramatic efforts were made in Bolivia.
In spite of the relative unimportance of previous Bolivian-Bloc rela-
tions, widely publicized Soviet offers to provide Bolivia with a tin
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smelter evoked a strong emotional response among many sectors of the
Bolivian populace and contributed to the political instability of -,hat
country. Accordingly, the Bolivian Government felt forced to name an
economic mission to explore Soviet offers of aid.
Elsewhere in the hemisphere the Bloc pursued its program with con-
siderably less vigor. Bloc economic influence in the River Plate
countries continued to deteriorate throughout 1960. US aid and the
adoption of the economic reforms recommended by the International
Monetary Fund continued to reduce Uruguayan and Argentine interest
in Bloc trade. Argentina canceled its bilateral agreements with all
Bloc countries except the USSR, and commerce with the Bloc showed
little change from 1959. The Bloc's share of Uruguay's exports in
the first half of 1960 was only 10 percent compared with 28 percent:
in the corresponding period of 1959. The most significant decline
was noted in wool purchases, which dropped from 40 percent of tJrugtzay's
total wool sales in the 1958/59 season to 14 percent in the 1959/6()
season. The USSR, Uruguay's number one customer in the 1958;59 season,
was inactive in the Uruguayan wool market in the 1959/60 season. Uru-
guay appeared to be equally reluctant to buy Soviet goods. Soviet
efforts to obtain a long-term wool-petroleum barter agreement were re-
jected in spite of pressure from wool exporters. Among Bloc countries.
only Poland and Communist China remained as important Uruguayan traadin ;
partners, the latter only in the capacity of importer.
During the last half of 1960-the Bloc was occupied in efforts to
deliver on its previous trade commitments to Brazil. Trade continued
to increase, as East Germany and Poland assumed a more important role
in the Bloc economic efforts. The last half of 1960, however, was
marked by the complete absence of new Bloc moves. Uncertainties over
the future policies of President-elect Quadros contributed to the
general cautiousness of the Bloc.
In other developments Ecuador reached an agreement with Czecho-
slovakia to barter bananas and coffee worth $630,000 for Czechoslo-ak
technical equipment. An Ecuadoran official stated that Czechoslovakia
was willing to extend credits up to $10 million. The USSR also ha;
renewed its efforts to expand trade with Chile, offering to exchange
petroleum for Chilean copper.
Middle East
In the Middle East, Bloc efforts were marked by modest progress.
on existing programs and the establishment of new lines of credit to
Iraq and the UAR.
Although limited improvement was noted in Iraq's relations with
the West, Bloc economic ties with Iraq expanded during the last half
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of 1960. Iraq signed a $70 million arms agreement with the USSR in
September and accepted a Czechoslovak credit of $33.6 million for in-
dustrial development projects. Although a few Soviet projects were
initiated during the period under review, many difficulties were en-
countered. On the one hand, Bloc technicians complained of Iraq's
procrastination in providing construction areas and general lack of
cooperation, and, on the other hand, Iraqi officials criticized the
Bloc's failure to deliver goods on schedule.
The UAR continued to maintain strong economic ties with the Bloc
in spite of last year's cooling in political relations between the two
areas. The Egyptian sector received a $14+.4 million credit from Hun-
gary for industrial development, and the Syrian sector a $2.8 million
credit from Czechoslovakia for the supply of equipment for municipal
and rural projects.
Implementation of outstanding Bloc credits was pressed in both
sectors of the UAR. In the Syrian sector, where utilization of the
1957 Soviet credit had been lagging, there was a sudden spurt of
activity. In September, contracts for a number of major projects were
awarded to the USSR, and technical studies were initiated. One of the
major agreements thus concluded was a contract for Soviet construction
of the Qamishli-Latakia-Aleppo Railroad. In the Egyptian sector, work
on the Aswan High Dam appeared to be progressing on schedule. Delivery
of all the machinery and equipment for the first stage of construction
was expected to be completed by the end of 1960, and Soviet engineers
were working on plans for the second stage.
'The USSR continued to exploit the Afghan desire for rapid economic
and social development. The high priority accorded to existing Bloc
efforts in Afghanistan and the vigorous implementation of Bloc projects,
particularly on such strategic projects as airfields and roads, appears
to have heightened Soviet prestige in that area. Major Soviet initia-
tives during the period also include (1) the entry into the field of
city planning and housing with purported agreements to provide advisers
to develop a 25-year rebuilding program for the city of Kabul and to
construct a large number of dwelling units, (2) the completion of the
Kabul airport project, and (3) the conclusion of contracts for construc-
tion of the Naghlu hydroelectric station and. the Darunta irrigation
project.
No decision was reached on a Soviet offer to exploit, refine, and
market petroleum reserves discovered by the Bloc in northern Afghani-
stan. It appeared likely, however, that any such program would even-
tually become dependent on assistance from Moscow. The Bloc, through
the provision of material, training, and advisory services and the ex-
tensive construction of military facilities, remained the dominant
factor behind the buildup of the Afghan armed forces.
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The arrival in Moscow of a Pakistan economic delegation to discuss
an offer of Soviet assistance for petroleum development indicated a
shift in the policy of the Pakistan Government of avoiding economic
involvement with the Bloc. Soviet officials appeared to be Titling to
extend a long-term credit to be repaid in installments by the export
of Pakistan commodities. The Pakistan team, among other negotiating
objectives, hoped to induce the USSR to accept exports that cannot
readily be sold in the West.
No new Bloc credits were extended to Yemen, although there were
several offers during the review period. Meanwhile, the near compl?-
tion of major Bloc projects carried out under previous credits addel
significantly to the internal propaganda impact of Bloc economic
assistance. Iran, determined to maintain its Western ties, remainel
unreceptive to a Soviet offer of substantial economic assistance.
Negotiations, however, were reported to be underway for Czechoslovak
assistance to a private company for the supply and installation of -.n
ore-dressing plant. The provisional government of Turkey refrained
from taking up general offers of aid proffered by the USSR and Poland.
The Polish offers included a $l+ million credit to build a borax and
boric acid plant.
The Greek Government continued to resist any large-scale collabo-
ration with the Bloc, but internal pressure was building up for clo.;er
trade relations as a mean; of reducing large agricultural surpluses.
Commercial efforts also characterized Bloc approaches to Cyprx.
Government leaders indicated that, although they do not wish to accept
Soviet aid, they may accept help from any and all sources if the is_and`:
economic situation should continue to deteriorate.
Africa became a major theater for Bloc economic activities during
the period under review. Its bold intervention in the Congo resulted
in a serious setback when its missions were expelled. Nevertheless.
it obviously had not written off the Congo as a profitable target.
Moreover, it scored major gains in Ghana while further consolidating;
its already strong position in Guinea. The rash of newly independe.>Lt
countries provided a wealth of opportunities for the Bloc -- oppor-
tunities that it did not hesitate to exploit. Diplomatic and economic
missions were despatched quickly, and offers of trade and economic
assistance followed promptly. Of the newer nations, the Bloc achieved
a significant foothold only in Mali. Nevertheless, political and eco-
nomic forces operating in many of the new nations increased their rE-
ceptivity to Bloc offers. Of the established countries, Morocco and
Sudan accepted Bloc military aid and Tunisia accepted Bloc economic
credits, all for the first time.
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The pace of economic activity quickened in Guinea as the Bloc pur-
sued its objective of demonstrating the advantages of cooperation with
the Bloc. Bloc aid rose from $43 million to more than $108 million
during the period. The USSR provided an additional credit of $21.5 mil-
lion to finance several projects on the Konkoure River and other proj-
ects set forth in Guinea's economic development program. :Peiping ex-
tended a $25 million interest-free credit payable in 10 years for other
projects in the development program. East Germany, Hungary, and Poland
extended developmental credits aggregating more than $12 million. Fol-
lowing Guinea's withdrawal from the franc zone, the Bloc assumed an in-
creasingly dominant position in Guinea's foreign trade. Bloc aid to
the Guinean military establishment also increased sharply. Three ship-
ments of Bloc arms arrived in the fall of 1960, some of which went to
Mali.
The Bloc took full advantage of Ghana's growing estrangement from
the West following the defeat of Nkrumah's Congo policy. A new era
in Bloc-Ghanaian economic collaboration begun in August with the signing
of three agreements covering trade, credit, and technical assistance
as well as the purchase of Soviet aircraft. A $40 million. Soviet credit
repayable in 12 years at 2.5-percent interest may be used in part to
construct the Bui Dam on the Black Volta River. This project could
undercut the much larger Volta River project that would be financed by
the West. The USSR also advanced a $6.7 million credit to purchase four
I1-18 aircraft for Ghana Airways, and agreement in principle was reached
for the purchase of two more. The number of Soviet technicians in the
country increased to at least 120 during the period compared with a
mere handful in the previous 6 months.
Increased receptivity characterized Asian reactions to Bloc offers
of aid, trade, and technical assistance, but the degree of receptivity
varied widely. Some countries became less apprehensive over the pos-
sibility that economic involvement would necessarily lead to serious
dependence on the Bloc or other undesirable consequences.
Indonesia continued to look to the Bloc, particularly the USSR,
for further support for its military buildup and economic development
program. The USSR made a significant advance when, in September 1960,
preliminary arrangements were worked out for a $300 million line of
credit to Indonesia for large-scale modernization and training of its
armed forces. Moscow also moved quickly to implement Khrushchev's
February pledge of $250 million for economic development. Czechoslo-
vakia pledged a long-term credit for the purchase of capital goods,
and Poland, Hungary, and Bulgaria agreed to begin negotiations on the
extension of medium-term credits. Survey activities on new aid projects
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considerably increased the number of Bloc technicians assigned to
Indonesia. A new Soviet-Indonesian trade agreement provided for
tripling the value of exchanges between the two areas within the next
3 years.
Cambodia accepted substantial additional aid from the USSR, Czecho-
slovakia, and Communist China. Cambodian acceptance of credits as:;ist?
ante marked a significant departure from earlier policy. Trade with
the Bloc in 1960 appeared to be increasing sharply and may have more
than doubled the level in 1959.
India remained receptive to trade and aid offers from the USSR
and the European Satellites. Important developments included Indis.'s
acceptance of a new $125 million credit to finance projects under its
Third Five Year Plan, the purchase by India of certain quasi-military
equipment, and the entry of the USSR into India's petroleum market.
It appeared likely that Burma would accept some Bloc assistance
in connection with its Four Year Plan for economic development. There
also were indications of a concerted Burmese effort to establish closer
ties with Communist China.* Trade with the Bloc, particularly with
Communist China, increased. It is expected to rise still further in
1961 as a result of new trade arrangements. Bloc efforts in Thail&nd
continued to be limited to diplomatic activity and small commercial
trade, but Thai dissatisfaction with some US policies could contribute
to an improved climate in Thailand for Soviet activities.
Nepalese leaders continued to pursue an overtly neutralist foreign
policy while remaining apprehensive over internal and external Comm''-
nist objectives. Nevertheless, Communist influence in Nepal probably
increased somewhat during the period as relations between the goveri-
ment of Nepal and the USSR and Communist China became somewhat closor.
The USSR offered to finance the construction of the trans-Nepal road,
and work on five Soviet projects proceeded close to schedule. "ommi-
nist China presented gifts in the form of agricultural and. medical
equipment, but there were no visible results of its aid program, wh ch
dates back to 1956.
The Bloc, taking advantage of Ceylon's grave economic problems,
expanded its offers of aid and trade and expedited assistance under
existing agreements. Negotiations were resumed with Communist Chin-t
for the acquisition of a textile mill under the 1957 aid agreement.
Exports to the Bloc during the first 9 months increased 60 percent,
primarily as a result of stepped-up Bloc purchases of rubber.
* On 9 January 1961, Communist China extended to Burma an interest-free
credit of $84 million to be used for economic projects over a 6-year
period ending in September 1957.
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Europe
Bloc economic relations with the underdeveloped countries of Europe
were limited to trade. Yugoslav-Bloc relations continued to be gen-
erally correct. Trade between the two areas expanded, but because of
the over-all increase in Yugoslavia's trade the Bloc accounted for no
greater proportion of Yugoslavia's total trade than it had in the pre-
ceding year. Five-year trade agreements coinciding with Yugoslavia's
new Five Year Plan were concluded with most Bloc countries, thus con-
tinuing a trend toward concluding longer term trade arrangements with
Moscow and its Satellites. There were no indications of discord in
Bloc-Yugoslav economic relations, but there also were no new offers of
economic assistance.
Iceland's exchange stabilization program, initiated in March 1960,
significantly reduced imports from the Bloc. Exports to the Bloc also
declined appreciably. The Bloc, however, continued to provide Iceland
with a major outlet for its fish and fish products that cannot readily
be sold in the West. For the first time, Iceland succeeded in obtain-
ing a convertible currency clause in its trade arrangements with a
Bloc country when, in October 1960, a new, agreement was concluded with
Poland.
The Bloc made no significant progress in expanding economic rela-
tions with Spain or Portugal during 1960. Bloc trade with Portugal
continued to account for only a very small percentage of the total.
Spanish trade with the Bloc, also small, continued in 1960 at about
the same level as in previous years.
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BLOC CREDITS AND GRANTS TO UNDERDEVELOPED COUNTRL
January 1954 - December 1960
3,552
Million US dollars
EXTENDED
2,141
OBLIGATED
TOTAL BLOC
EXTENDED 4,809
OBLIGATED 3,639
DRAWN 1,555
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SINO-SOVIET BLOC ECONOMIC ACTIVI
IN UNDERDEVELOPED AREAS
1 JULY--31 DECEMBER 1960
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SINO-SOVIET BLOC ECONOMIC ACTIVITIES
IN UNDERDEVELOPED AREAS
1 JULY-31 DECEMBER 1960
February 1961
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FOREWORD
The reports on Sino-Soviet Bloc economic activities in underdevflopE-d
areas in this series provide periodic summaries and analytical inter-
pretations of significant developments in the economic relations of Bloc
countries with underdeveloped countries of the Free World. These duvel-
opments are reported on a current, factual basis in the Biweekly Report?.
under the same title.
This report, covering the 6 months from 1 July through 31 December
1960, constitutes the tenth periodic supplement to the background report
on Sino-Soviet Bloc Postwar Economic Activities in Underdeveloped Areas,
8 August 1956, SECRET. The present supplement relates noteworthy nc3n-
economic activities, including military aid, to the economic operations
of the Bloc in underdeveloped countries in order to place the economic
aspects in the perspective of the over-all programs of the Bloc in these
countries.
For purposes of this report, the term underdeveloped areas inclt.des
the following Free World countries: (1) all independent countries in
Latin America; (2) all countries in the Middle East, including Afghan-
istan, Cyprus, Greece, Pakistan, Turkey, and the United Arab Republic
(Egypt and Syria); (3) all independent countries in Africa, except the
Union of South Africa; (4) all countries in South and Southeast Asie;
and (5) Iceland, Portugal, Spain, and Yugoslavia.
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CONTENTS
Summary . . . . . . . . . . . . . . . . . . . . . . . . . .
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SINO-SOVIET BLOC ECONOMIC ACTIVITIES IN UNDERDEVELOPED AREAS
1 JULY - 31 DECEMBER 1960
Summary
The Moscow-Peiping Dispute
A notable development during the period under review was the articu-
lation of Moscow's dispute with Peiping over the correct strategy to be
pursued in the world Communist struggle. An important element in the
dispute that dates back to 1957 is whether, in light of the present
state of affairs in underdeveloped countries, the Bloc should rely jri-
marily on collaboration with the nationalistic and non-Communist leederE
of those countries or whether greater emphasis should be given to direct
revolutionary action against such leadership.
In general, the Chinese Communists have objected to large-scale
Soviet economic and political support for bourgeois -- that is, non--
Communist -- governments. They have argued that such aid retards tie
development of more revolutionary forces and, at least in some case,
assists governments with which they are at odds. Nevertheless, Peiping
has followed a far less rigid policy in dealings with other Asian ccun-
tries when China's national interests were at stake. There appears to
be no disagreement between Moscow and Peiping about the desirabilit-0, of
providing strong support for regimes, such as Castro's, which follo'.pro-Bloc foreign and pro-Communist domestic policies.
It is difficult to forecast precisely what effect the Moscow-Pepin
dispute will have on the future course of the Soviet economic offenmive
in underdeveloped areas. Although Soviet foreign aid programs may le
subject to modification, they probably will not change drastically !;.s
long as Khrushchev and his supporters maintain a dominant position .n
the Bloc.
Patterns and Prospects
Bloc penetration of the underdeveloped areas continued apace throug1.
out the last half of 1960. For most of the period under revi?:w, La=yin
America and Africa were the principal regions in which the Bloc's new
efforts were concentrated. Late in the year, however, Southeast As--a
also received priority attention.
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Military assistance once again became an important device for ex-
tending Soviet influence. Mainly as the result of a continuing program
to provide its on armed forces with more modern equipment and also
because of past reductions in the size of its military establishment,
the USSR has long been accumulating a sizable stock of earlier models
with which it has been implementing its arms diplomacy in key areas.
Starting early in the year, the USSR resumed large-scale credit sales
of military items to countries that had made substantial purchases in
the past and also tried to persuade other countries to outfit at least
some of their military forces with Soviet equipment. These sales and
offers grew in volume as the year progressed.
Another notable feature of the Bloc foreign economic program has
been the Soviet attempt to penetrate Western oil markets in under-
developed areas, an attempt that became more vigorous during the last
half of 1960. Soviet offers to sell petroleum and petroleum products
were welcomed by many countries because they provided an opportunity
both to reduce their outlay for essential imports by paying lower
prices and to save foreign exchange by acquiring such imports through
barter deals.
Although the USSR has sizable export commitments, its oil produc-
tion is sufficient to permit a substantial increase in sales. Moreover,
it is accelerating the expansion of its tanker fleet by purchasing
ships in Western Europe and Japan in an effort to decrease its depend-
ence on Western charter vessels.
Of greater potential impact in the long run is the Soviet program
to provide educational assistance for students from underdeveloped
countries. In spite of occasional expressions of discontent by some
foreign students studying at Soviet institutions, the USSR has inten-
sified its efforts to attract more students from underdeveloped coun-
tries. The Kremlin, however, has given indications that it expects to
exercise more effective control over their educational environment.
As part of a program to advance these aims, the USSR has offered more
scholarships and has established a special institution of higher learn-
ing in Moscow, the University of Peoples Friendship, primarily to accom-
modate students from underdeveloped countries. The new university
opened in October 1960, and enrollment was estimated to be 500 for the
academic year 1960/61. A student body of 3,000 or more was projected
for 1965.
Propaganda activities during the last half of 1960 continued to
serve as an integral part of the Bloc penetration program. Radiobroad-
casting services, the spearhead of these efforts, expanded in time,
language, and area coverage. The Bloc also encouraged the exchange of
films and television programs in an effort to utilize these media for
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propaganda purposes. By means of an aggressive promotional program
that features local-language editions at nominal prices, the Bloc &_so
is distributing Communist books and periodicals in many underdevelo:ned
countries. Such efforts are augmented by book fairs, gifts of book:;,
and library exchanges.
Credits and Grants
During the last half of 1960 the Bloc extended more than $800 m-41-
lion* in economic and military assistance to underdeveloped countries.
Military aid totaled $375 million, the largest amount extended by the
Bloc during any 6-month period. Total Bloc financial assistance fo--
the full year 1960 stands at a record $1.5 billion. Although P4 under-
developed countries have received some form of financial assistance
from the Bloc, 9 countries -- the United Arab Republic (UAR), Indonosia
India, Iraq, Afghanistan, Cuba, Ethiopia, Guinea, and Argentina --
accounted for 90 percent of all credits and grants extended b;Y the end
of 1960.
Drawings on Bloc credits and grants amounted to about $95 million
during the period July-December 1960. Utilization of nonmilitary a-: -
accounted for most of this sum. By the end of 1960, drawings on al'
Bloc aid extended since 1954 totaled $1.6 billion, more than half o'
which represented goods and services provided by the USSR.
Technical Assistance
About 7,900 Bloc technicians were present in underdeveloped coun-
tries in the last 6 months of 1960. This number included 6,500 eco-
nomic and 1,400 military specialists, about 850 more economic and
150 more military personnel than in the first 6 months of the ;Tear.
Large numbers of Bloc economic technicians were despatched during t'ie
period under review, particularly to Africa and the Middle East. An
influx of Bloc military technicians into Cuba since mid-1960 accounted
for the rise in Bloc military personnel.
By the end of 1960, 11,700 nationals of underdeveloped co'zntrie3
had attended or were enrolled at training institutions in the },loc.
Military personnel comprised 4,600 of this group, academic students
4,000, and technical trainees 3,000. The nine principal recipients
listed above were host to more than 75 percent of the Bloc technicians
present in underdeveloped areas in the last half of 1960 and provide
more than 85 percent of the students from these areas who have studied
in the Bloc since 1955.
* Unless otherwise indicated, all dollar values in this repo. are in
terms of US dollars.
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Trade
Bloc trade with underdeveloped countries during the first 6 months
of 1960 increased 20 percent above the level reached for the same
period in 1959. The Bloc not only exchanged a larger volume of goods
with these countries but also increased its relative share of their
total trade. Bloc imports expanded more than exports, with Chinese
Communist purchases showing a gain of more than 100 percent above the
level of the first 6 months of 1959.
Although increases were posted in Bloc trade with all underdeveloped
regions, commerce with Africa showed the largest relative gain, 105 per-
cent above the level reported for the first half of 1959. Exchanges
with Latin America rose by 50 percent, reflecting the growth in Bloc
economic ties with Cuba. Bloc trade with Asia and the Middle East ex-
panded by 15 and 10 percent, respectively.
The European Satellites continued as the major trading area in Bloc
commerce with underdeveloped countries. Communist China increased its
share to one-fifth of the total, a rise of 5 percent above its share
in the first half of 1959.
Latin America
Throughout 1960, Bloc efforts in Latin America were dominated by
the growing partnership with Cuba. By December the Castro regime had
(1) decided to establish diplomatic relations with all Bloc regimes
except East Germany, (2) followed a UN voting pattern almost parallel
to that of the Soviet Bloc, and (3) issued public statements echoing
the Bloc's views on most issues. This growing Cuban-Bloc entente was
sharply reflected in the economic sphere. By mid-December, Cuba had
established a network of bilateral economic agreements with all Bloc
regimes except Albania. During 1960 the Bloc purchased about 40 per-
cent of Cuba's sugar exports, and trade agreements concluded late in
1960 indicate that this proportion may reach 65 percent in 1961. In
addition, the Bloc supplied all Cuban imports of POL during the second
half of 1960 and became a major source of many other commodities. The
USSR, Communist China, Czechoslovakia, and Hungary provided Cuba with
nonmilitary credits totaling $215 million for use in the construction
of 50 or more industrial plants. Bloc technicians made preliminary
surveys of the Cuban, economy, and many held key positions in various
Cuban economic agencies. Large-scale arms shipments provided a more
sinister aspect to Cuban-Bloc cooperation.
Besides Cuba the Bloc's most dramatic efforts were made in Bolivia.
In spite of the relative unimportance of previous Bolivian-Bloc rela-
tions, widely publicized Soviet offers to provide Bolivia with a tin
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smelter evoked a strong emotional response among many sectors of the
Bolivian populace and contributed to the political instability of that
country. Accordingly, the Bolivian Government felt forced to name an
economic mission to explore Soviet offers of aid.
Elsewhere in the hemisphere the Bloc pursued its program with con-
siderably less vigor. Bloc economic influence in the River Pla:e
countries continued to deteriorate throughout 1960. US aid and the
adoption of the economic reforms recommended by the International
Monetary Fund continued to reduce Uruguayan and Argentine interest
in Bloc trade. Argentina canceled its bilateral agreements wizi-L all
Bloc countries except the USSR, and commerce with the Bloc showed
little change from 1959. The Bloc's share of Uruguay's exports in
the first half of 1960 was only 10 percent compared with 28 percent
in the corresponding period of 1959. The most significant decline
was noted in wool purchases, which dropped from 40 percent of Uruguay's
total wool sales in the 1958/59 season to 14 percent in the 195`?/60
season. The USSR, Uruguay's number one customer in the 1958/59 season,
was inactive in the Uruguayan wool market in the 1959/60 season. Jra-
guay appeared to be equally reluctant to buy Soviet goods. Soviet
efforts to obtain a long-term wool-petroleum barter agreement were re-
jected in spite of pressure from wool exporters. Among Bloc countries,
only Poland and Communist China remained as important Uruguayan trading
partners, the latter only in the capacity of importer.
During the last half of 1960 the Bloc was occupied in efforts to
deliver on its previous trade commitments to Brazil. Trade continued
to increase, as East Germany and Poland assumed a more important role
in the Bloc economic efforts. The last half of 1960, however, was
marked by the complete absence of new Bloc moves. Uncertainties over
the future policies of President-elect Quadros contributed to the
general cautiousness of the Bloc.
In other developments Ecuador reached an agreement with Czecho-
slovakia to barter bananas and coffee worth $630,000 for Czechoslovak
technical equipment. An Ecuadoran official stated that Czechoslovakia
was willing to extend credits up to $10 million. The USSR also has
renewed its efforts to expand trade with Chile, offering to exchange
petroleum for Chilean copper.
Middle East
In the Middle East, Bloc efforts were markedby modest progress
on existing programs and the establishment of new lines of credit to
Iraq and the UAR.
Although limited improvement was noted in Iraq's relations with
the West, Bloc economic ties with Iraq expanded during the last half
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of 1960. Iraq signed a $70 million arms agreement with the USSR in
September and accepted a Czechoslovak credit of $33.6 million for in-
dustrial development projects. Although a few Soviet projects were
initiated during the period under review, many difficulties were en-
countered. On the one hand, Bloc technicians complained of Iraq's
procrastination in providing construction areas and general lack of
cooperation, and, on the other hand, Iraqi officials criticized the
Bloc's failure to deliver goods on schedule.
The UAR continued to maintain strong economic ties with the Bloc
in spite of last year's cooling in political relations between the two
areas. The Egyptian sector received a $14+.4 million credit from Hun-
gary for industrial development, and the Syrian sector a $2.8 million
credit from Czechoslovakia for the supply of equipment for municipal
and rural projects.
Implementation of outstanding Bloc credits was pressed in both
sectors of the UAR. In the Syrian sector, where utilization of the
1957 Soviet credit had been lagging, there was a sudden spurt of
activity. In September, contracts for a number of major projects were
awarded to the USSR, and technical studies were initiated. One of the
major agreements thus concluded was a contract for Soviet construction
of the Qamishli-Latakia Aleppo Railroad. In the Egyptian sector, work
on the Aswan High Dam appeared to be progressing on schedule. Delivery
of all the machinery and equipment for the first stage of construction
was expected to be completed by the end of 1960, and Soviet engineers
were working on plans for the second stage.
The USSR continued to exploit the Afghan desire for rapid economic
and social development. The high priority accorded to existing Bloc
efforts in Afghanistan and the vigorous implementation of Bloc projects,
particularly on such strategic projects as airfields and roads, appear
to have heightened Soviet prestige in that area. Major Soviet initia-
tives during the period also include the completion of the Kabul air-
port project and the conclusion of contracts for construction of the
Naghlu hydroelectric station and the Darunta irrigation project.
No decision was reached on a Soviet offer to exploit, refine, and
market petroleum reserves discovered by the Bloc in northern Afghani-
stan. It appeared likely, however, that any such program would even-
tually become dependent on assistance from Moscow. The Bloc, through
the provision of material, training, and advisory services and the ex-
tensive construction of military facilities, remained the dominant
factor behind the buildup of the Afghan armed forces.
A Pakistan economic delegation arrived in Moscow to discuss an
offer of Soviet assistance for petroleum development. Soviet officials
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appeared to be willing to extend a long-term credit to be rep, J_d in
installments by the export of Pakistan commodities.
No new Bloc credits were extended to Yemen, although there were
several offers during the review period. Meanwhile, the near comple-
tion of major Bloc projects carried out under previous credits added
significantly to the internal propaganda impact of Bloc economic
assistance. Iran, determined to maintain its Western ties, remained.
unreceptive to a Soviet offer of substantial economic assistance.
Negotiations, however, were reported to be underway for Czechoslovak
assistance to a private company for the supply and installation of to
ore-dressing plant. The provisional government of Turkey refrained
from taking up general offers of aid proffered by the USSR and Poland.
The Polish offers included a $4 million credit to build a bor _ and
boric acid plant.
The Greek Government continued to resist any large-scale ::cllab-
ration with the Bloc, but internal pressure was building up for clo3er
trade relations as a means of reducing large agricultural surpluses.
Commercial efforts also characterized Bloc approaches to Cyprus.
Africa
Africa became a major theater for Bloc economic activities duri-19
the period under review. Its bold intervention in the Congo resulted
in a serious setback when its missions were expelled. Nevertheless,
it obviously had not written off the Congo as a profitable target.
Moreover, it scored major gains in Ghana while further consolidatiri
its already strong position in Guinea. The rash of newly independent
countries provided a wealth of opportunities for the Bloc -- '_)p}port mi-
ties that it did not hesitate to exploit. Diplomatic and economic
missions were despatched quickly, and offers of trade and economic
assistance followed promptly. Of the newer nations, the Bloc achiered
a significant foothold only in Mali. Nevertheless, political and e,o-
nomic forces operating in many of the new nations increased their r-~-
ceptivity to Bloc offers. Of the established countries, Moroceo ani
Sudan accepted Bloc military aid and Tunisia accepted Bloc economic
credits, all for the first time.
The pace of economic activity quickened in Guinea as the Bloc pur-
sued its objective of demonstrating the advantages of cooperation with
the Bloc. Bloc aid rose from $43 million to more than $108 million
during the period. The USSR provided an additional credit of $21.5 mil
lion to finance several projects on the Konkoure River and other proj-
ects set forth in Guinea's economic development program. Peiping e-
tended a $25 million interest-free credit payable in 10 years for other
projects in the development program. East Germany, Hungary, ,d Poland
extended developmental credits aggregating more than $12 million. Po1-
lowing Guinea's withdrawal from the franc zone, the Bloc assumed an
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increasingly dominant position in Guinea's foreign trade. Bloc aid
to the Guinean military establishment also increased sharply.
The Bloc took full advantage of Ghana's growing estrangement from
the West following the defeat of Nkrumah's Congo policy. A new era
in Bloc-Ghanaian economic collaboration began. in August with the signing
of three agreements covering trade, credit, and technical assistance
as well as the purchase of Soviet aircraft. A $i-0 million Soviet credit
repayable in 12 years at 2.5-percent interest may be used in part to
construct the Bui Dam on the Black Volta River. This project could
undercut the much larger Volta River project that would be financed by
the West. The USSR also advanced a $6.7 million credit to purchase four
I1-18 aircraft for Ghana Airways, and agreement in principle was reached
for the purchase of two more. The number of Soviet technicians in the
country increased to at least 120 during the period compared with a
mere handful in the previous 6 months.
Increased receptivity characterized Asian reactions to Bloc offers
of aid, trade, and technical assistance, but the degree of receptivity
varied. widely. Some countries became less apprehensive over the pos-
sibility that economic involvement would necessarily lead to serious
dependence on the Bloc or other undesirable consequences.
Indonesia continued to look to the Bloc, particularly the USSR,
for further support for its military buildup and economic development
program. The USSR made a significant advance when, in September 1960,
preliminary arrangements were worked out for a $300 million line of
credit to Indonesia for large-scale modernization and training of its
armed forces. Moscow also moved quickly to implement Khrushchev's
February pledge of $250 million for economic development. Czechoslo-
vakia pledged a long-term credit for the purchase of capital goods,
and Poland, Hungary, and Bulgaria agreed to begin negotiations on the
extension of medium-term credits. Survey activities on new aid projects
considerably increased the number of Bloc technicians assigned to Indo-
nesia. A new Soviet-Indonesian trade agreement provided for tripling
the value of exchanges between the two areas within the next 3 years.
Cambodia accepted substantial additional aid from the USSR, Czecho-
slovakia, and Communist China. Cambodian acceptance of credits assist-
ance marked a significant departure from earlier policy. Trade with
the Bloc in 1960 appeared to be increasing sharply and may have more
than doubled the level in 1959.
India remained receptive to trade and aid offers from the USSR
and the European Satellites. Important developments included India's
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acceptance of a new $125 million credit to finance projects under its
Third Five Year Plan, the purchase by India of certain quasi-militi3.ry
equipment, and the entry of the USSR into India's petroleum market.
It appeared likely that Burma would accept some Bloc assistance
in connection with its Four Year Plan for economic development. There
also were indications of a concerted Burmese effort to establish c-ose:~
ties with Communist China.- Trade with the Bloc, particularly with
Communist China, increased. It is expected to rise still further in
1961 as a result of new trade arrangements. Bloc efforts in Thailland
continued to be limited to diplomatic activity and small commercia:_
trade.
Nepalese leaders continued to pursue an overtly neutralist foreign
policy while remaining apprehensive over internal and external Commu-
nist objectives. Nevertheless, Communist influence in Nepal probaoly
increased somewhat during the period as relations between the govern-
ment of Nepal and the USSR and Communist China became somewhat clo$$er.
The USSR offered to finance the construction of the trans-Nepal road,
and work on five Soviet projects proceeded close to schedule. Cornnu-
nist China presented gifts in the form of agricultural and medical
equipment, but there were no visible results of its aid program, which
dates back to 1956.
The Bloc, taking advantage of Ceylon's grave economic problems.
expanded its offers of aid and trade and expedited assistance under
existing agreements. Negotiations were resumed with Communist China
for the acquisition of a textile mill under the 1957 aid agreement.
Exports to the Bloc during the first 9 months increased 60 percent,
primarily as a result of stepped-up Bloc purchases of rubber.
Europe
Bloc economic relations with the underdeveloped countries of i..urope
were limited to trade. Yugoslav-Bloc relations continued to be gen-
erally correct. Trade between the two areas expanded, but because of
the over-all increase in Yugoslavia's trade the Bloc accounted for no
greater proportion of Yugoslavia's total trade than it had in the T-re-
ceding year. Five-year trade agreements coinciding with Yugoslavi.'s
new Five Year Plan were concluded with most Bloc countries, thus crn-
tinuing a trend toward concluding longer term trade arrangements with
Moscow and its Satellites. There were no indications of discord it.
Bloc-Yugoslav economic :relations, but there also were no new offer.,
of economic assistance.
* On 9 January 1961, Communist China extended to Burma an interest-free
credit of $84 million to be used for economic projects over a 6-yefr
period ending in September 1957.
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Iceland's exchange stabilization program, initiated in Maxch 1960,
significantly reduced imports from the Bloc. Exports to the Bloc also
declined appreciably. The Bloc, however, continued to provide Iceland
with a major outlet for its fish and fish products that cannot readily
be sold in the West. For the first time, Iceland succeeded in obtain-
ing ? . convertible currency clause in its trade arrangements with a
Bloc country when, in October 1960, a new agreement was concluded with
Poland.
The Bloc made no significant progress in expanding economic rela-
tions with Spain or Portugal during 1960. Bloc trade with Portugal
continued to account for only a very small percentage of the total.
Spanish trade with the Bloc, also small, continued in 1960 at about
the same level as in previous years.
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