CUBA: PATTERNS AND PROSPECTS OF SOVIET AID

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84S00897R000200020004-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 28
• Document Creation Date: December 22, 2016
• Document Release Date: June 22, 2011
• Sequence Number: 4
• Publication Date: November 1, 1983
• Content Type: REPORT

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Directorate of
Intelligence
--Seet---
Cuba: Patterns and Prospects
of Soviet Aid
ALA 83-10180X
SOV 83-10198X
November 1983
Copy A 7 7
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Directorate of
% Intelligence
of Soviet Aid
Cuba: Patterns and Prospects
An Intelligence Assessment
This paper was prepared byl Office of
African and Latin American Analysis, and
Office of Soviet Analysis. It was
coordinated with the Directorate of Operations.F_
Division, ALA
Comments and queries are welcome and may be
directed to the Chief, Middle America-Caribbean
Secret
ALA 83-10180X
SOV 83-10198X
November 1983
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Cuba: Patterns and Prospects
of Soviet Aid
Key Judgments Soviet official assistance to Cuba-which currently is running at about
Information available $4.5 billion annually in soft currency trade subsidies and project support
as of 15 October 1983 and is equivalent to over 30 percent of Cuba's real output-still shows little
was used in this report.
sign of stimulating the sort of development surge that both Havana and
Moscow are looking for. Indeed, during the period 1976-80 Cuba's average
annual economic growth of 3.4 percent was considerably below the 4.7-
percent average of non-OPEC LDCs, and Cuban output has not grown any
faster since. Moreover, Havana's hard currency debt levels increased by
about 140 percent during 1976-80-nearly the same as the average of non-
OPEC LDCs, even though Cuba was not forced to finance oil imports.
Although Havana's protected terms of trade with Soviet Bloc countries 25X1
have allowed it to perform slightly better than non-OPEC LDCs since
1980, the significance of Soviet aid to Cuba has sharpened considerably
over the period. Plunging revenues from sugar sales to the West-
particularly bad this year because of a poor harvest and only slight
improvement in depressed world prices-coincided with the withdrawal by
Western financial institutions of 35 percent of their short-term deposits in
the Cuban National Bank. This combination of events forced Havana to
slash its purchases from the West by more than 35 percent-making it
even more.dependent on imports from Moscow-and to reschedule its hard
currency debt.
Cuba's convertible currency position will improve somewhat over the next
two years as sugar production recovers. On the basis of our analysis of Cu-
ba's hard currency import needs and debt service requirements, however,
we judge that Havana will need to reschedule its debts to Western creditors
falling due in both 1984 and 1985 just to meet its minimum import
requirements from the West. 25X1
Moscow has made it clear to Havana that there are limits to its largess,
and we believe the rate of growth of Soviet aid to Cuba will be capped over
the next two years in accordance with the established pricing formulas and
plans on which it is based. In addition, we believe Moscow will demand
more accountability for the use of its aid.
Secret
ALA 83-10180X
SOV 83-10198X
November 1983
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We expect Fidel Castro-consistent with his past patterns in dealing with
crisis-to try to meet Soviet demands for better economic performance by
more draconian measures at home. The efficiency of the Cuban security
forces precludes the development of organized opposition in response to
increased consumer austerity. Dissatisfaction is likely to be expressed in
passive ways such as absenteeism and reduced labor productivity. Crime
and sabotage may also increase, but such actions will be quickly and
severely repressed.
Castro's deepening dependence on the Soviet Union is likely to cause the
Cuban leader to work even harder to enhance Cuba's political and military
value to the USSR. We believe Havana will become even more willing to
act aggressively in Moscow's interests.
Cuba's heavy dependence also places narrow limitations on Castro's ability
to act independently in foreign policy matters. For example, should the
USSR judge, that Cuba's actions in Central America were inimical to
Moscow's interests at any given time, the Cuban leader would have no
choice but to modify his tactics.
What we believe most likely to emerge from these various countervailing
forces is a set of accommodations that will result in:
? Slowly falling per capita aid from the Soviet Union to Cuba.
? Cuban growth that will continue to be largely determined by the
production and world price of sugar.
? Sustained Cuban difficulties in servicing debt to Western creditors.
? A somewhat greater presence of Soviet technical and economic advisers
in Cuba as the result of a moderate shift in emphasis from subsidies to
project aid.
We believe that these accommodations will serve both Havana and
Moscow:
? As long as Castro's position is not endangered by a sharper economic
downturn than we now foresee, we believe he will continue the march of
his political revolution.
? As long as Moscow can be assured that it will continue to derive
significant political and military benefits from its preeminent Third
World client, we judge that it will not slash its total trade and aid to
Cuba.
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Should a severe economic crisis or critical material shortage face the
Cubans, we believe that the Soviet Union would take whatever steps were
necessary to redress Havana's immediate problems. This would be particu-
larly likely if the crisis were brought about by natural disasters or sanctions
imposed by the West.
The implications for the United States in this set of outcomes are varied.
We believe that continued stagnation of the Cuban economy will increase
pressure on the Castro government to initiate another refugee exodus.
Meanwhile, however, Cuba's situation provides a wealth of propaganda
opportunities for the West in such themes as Havana's lack of creditworth-
iness, growing popular discontent on the island, the need for tightening the
totalitarian nature of the government, and-generally-the clear failure of
the Cuban revolution in political and economic terms.
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Key Judgments
Changes in Scope and Form 9
Cuban Expectations and Preparations 12
B. Methodological Notes on Economic Calculations
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Secret viii
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Boundary representation is
not necessarily authoritative.
North
Atlantic Ocean
Saint Cblatophary Antigua and Barbuda
and W.A.
p'"Guadeloupe (Fr.)
Dominicd% Martinique (Fr.)
Saint Lucia a
Saint Vincent o p Barbados
and the Grenadines
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Cpcrpt
? Cuba: Patterns and Prospects
of Soviet Aid
One of the goals of Fidel Castro's revolution-to
make the Cuban economy independent of foreign
powers-has become increasingly distant after 25
years of his rule. In 1958, for example, 70 percent of
Cuba's trade was with the United States; today, the
USSR accounts for the same portion. Investment,
once supplied primarily by private US residents, now
comes mostly from the USSR. In addition, there are
several thousand Soviet economic advisers and techni-
cians on the island, directly involved in day-to-day
economic management. Cuba's deepened economic
dependence on the USSR, however, is most evident in
its need for direct aid: whereas US economic aid to
Cuba in 1958 was equivalent, to less than 1 percent of
national output, Soviet economic aid in 1982-valued
at about $4.6 billion-corresponded to somewhat
more than 30 percent of Cuba's real output. Overall,
this aid-comprising trade subsidies and development
assistance and totaling nearly $29 billion since
1960-has increased significantly since 1974, becom-
ing virtually the only economic assistance Cuba now
receives. Without it, Havana would be hard pressed to
meet even basic consumption and investment needs.'
This paper examines the characteristics of Soviet aid,
its importance to the Cuban economy, and the pros-
pects for future assistance. The paper also considers
the effect on the Cuban economy of a stagnation in
aid in the 1980s and the impact on Havana's foreign
policy should Soviet assistance indeed level off.
Cuba depends on the Soviet Union for about 70
percent of its total trade. Moscow supplies Havana
with nearly all of its crude petroleum and petroleum
' In assembling and producing the economic data presented in this
assessment, we relied primarily on official Soviet and Cuban data.
In addition, we made various assumptions concerning key commod-
Figure 1
Cuba: Share of Total Trade,
by Major Area
1957
1965
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982 (est.)
0
Percent
II
II
Soviet Union
Other Communist
Non-Communist
25X1
products, grain, lumber, and much of its industrial,
agricultural, and transport equipment. In turn, Cuba
exports half its sugar crop as well as the bulk of its
nickel and citrus production to the USSR. Nearly all
of this trade is conducted in soft currency through a
bilateral clearing account.
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Figure 2
Cuba: Imports From USSR as a Percent
of Cuban Consumption, 1980
Tractors
Bulldozers
Oil
Automobiles
Lumber
Wheat
Cranes
Steel
Tin
Whole plants
Rubber
Trucks
Spare parts
Lard
Ball bearings
Corn
Machine tools
Fertilizers
Buses
Conserved meat
Tires
Motors
Beans
0 .20
Percent
Since the mid-1970s Soviet economic aid to facilitate
this commerce has consisted primarily of Moscow's
paying artificially high prices for Cuban goods while
pricing its exports to Cuba below world market levels.'
These subsidies represent implicit grants, allowing
Cuba to reduce its trade deficit by increasing the
value of key exports and decreasing the cost of some
imports. Together they have totaled $20 billion since
1961, reflecting the differences between Cuban-Soviet
trading prices and world prices for sugar, nickel, and
petroleum.
Cuba claims-and trade data reported by Havana
and Moscow indicate-that the general pricing for-
mula (and basis of subsidies) established in Cuba's
current five-year (1981-85) trade agreement with
Moscow is indexed in a way that Havana maintains
its purchasing power of 1974-75-the period of record
world sugar prices and oil prices that averaged $11
per barrel.' In 1982, for example, the USSR paid over
five times the world market price-about 45 cents per
pound-for Cuban sugar. In addition, Moscow
charged Havana only about three-fifths of the OPEC
benchmark price for oil.
We know from Soviet and Cuban trade data that
before the rise in world nickel prices in 1980 Moscow
also paid preferential prices for Cuban nickel. The
Soviet price paid in 1980, however, was below the
world market price. The trade data available for 1981
and 1982 are insufficient to determine what price the
USSR paid. Because world market prices have re-
mained high, we assume that the subsidy, if any, was
borne by Havana in 1981 or 1982.
' This means that for-every $1 per barrel increase in the price
Moscow charges Havana for its 200,000 b/d of oil imports, the
USSR will increase the price it pays Cuba for its annual 3.5 million
metric tons of sugar imports by 1 cent per pound. The price charged
Cuba for its oil imports from the USSR is based on the CEMA
formula-a moving average of the world price of oil over the
previous five years
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Table 1
Soviet Assistance Delivered to Cuba a
Average 1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982 Total
1983b
Annual
1961-
1961-70
82
Development aid c
225
450
565
430
295
150
185
230
320
460
830
1,415
975
8,555
1,000-1,100
Trade subsidies
102
120
49
181
43
914
1,384
2,040
2,626
2,718
2,633
3,023
3,586
20,337
2,944-3,460
Sugar d
102
51
0
71
-408
577
989
1,638
2,427
2,324
1,165
1,366
2,580
13,800
2,644-3,160
Petroleum e
0
42
27
62
411
310
374
378
164
381
1,480
1,657
1,006
6,292
300
Nickel d
0
27
22
48
40
27
21
24
35
13
-12
. 0
0
245
0
Total economic
aid
327
570
614
611
338
1,064
1,569
2,270
2,946
3,178
3,463
4,438
4,561
28,892
3,944-4,560
a Based on official Cuban and Soviet trade data.
b Projected.
c Based on (a) estimated balance-of-payments aid necessary to cover
Cuban trade deficits with the USSR, (b) Cuban purchases of
capital goods from Moscow, and (c) public statements by Cuban
and Soviet officials concerning the amount of development aid
extended. This aid is repayable but terms are highly concessional.
Projection for 1983 is based on preliminary trade data.
d Sugar and nickel subsidies are estimated as the difference be-
tween the price Moscow pays for these commodities and their world
market value. The difference is considered a grant and not subject
to repayment. Sugar subsidy for 1983 is based on 3-3.5 million tons
volume, a Soviet price of 50 cents per pound and an average world
price of nine cents to 10 cents per pound.
e The petroleum subsidy reflects the difference between the value of
petroleum purchased from the USSR and the value of these imports
at world market prices. It is considered a grant and not subject to
repayment. The projection for 1983 assumed 200,000-b/d volume,
a price to Cuba of $25 a barrel, and a world price of $29 per barrel.
Moscow also provides Cuba-both directly and
through Cuba's participation in CEMA-materials,
equipment, and advisers for projects relating to export
development and import substitution. This aid is
extended in the form of long-term credits (up to 25
years) with grace periods as long as 10 years and at
interest rates of no more than 4 percent. According to
a Soviet official, over 200 projects and enterprises
were constructed or expanded during Cuba's First
Five-Year Plan (1976-80) through Soviet assistance.
According to the official-as well as to Soviet trade
statistics-this aid amounted to 1.2 billion rubles, or
about $1.7 billion during the period. We estimate that
plants built or modernized with Soviet participation
since Castro took power in 1959 account for 100
percent of the output of sheet metal, 95 percent of
steel, 50 percent of fertilizers, and 40 percent of
electric power.
In addition, that part of Cuba's annual ruble trade
deficit with the USSR not covered by development
project credits is financed on favorable terms. The
determination of the amounts to be financed in this
way apparently occurs during both annual and five-
year bilateral trade negotiations. Cuban officials have
indicated that these credits are to be repaid over 15 to
17 years, including a five-year grace period, at zero
interest.
Overall development assistance-project aid and
trade deficit financing-has totaled nearly $9 billion
since 1960, according to Cuban and Soviet trade data.
About 40 percent of the total has accrued since 1979,
owing partly to increased deliveries for project aid but
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Figure 3 Figure 4
Cuba: Subsidized Versus World Market Prices Cuba: Total Trade Balance Adjusted
for Soviet Price Subsidies
Sugar
Cents per pound
-3 Total trade balance adjusted
1 1 1 1 1 1 1 1-
4
Petroleum
Dollars per barrel
Price charged by USSR
1 1 1 1 1 1 1 1
Nickel
Dollars per metric ton
I I I I I I I I I I 1 1
2,000 1971 72 73 74 75 76 77 78 79 80 81 82
a Includes only soft currency sugar purchases.
b Based on crude product ratio of 60 to 40.
I I I I I I I I I I I I
-5 1961-70 71 72 73 74 75 76 7.7 78 79 80 81 82
(Average
annual)
primarily to the failure of Cuba's soft currency
exports to keep pace with its imports from the USSR.`
In addition to these forms of aid, the Soviet Union has
helped alleviate Cuba's financial pressures in dealing
with the West:
? One way it has done this is by purchasing some
sugar outside the protocol and other, unspecified
goods for hard currency.'
' The portion of this assistance that accrued before 1973-about 3.4
billion-was rescheduled by the USSR in December 1972. Moscow
terminated all interest charges and postponed initial repayment
' In 1982 Cuban earnings from these sources totaled over $500
million, or one-third of the country's total foreign exchange earn-
ings, according to Cuba trade data. Of this amount, $300 million
was for sugar. These hard currency sugar purchases apparently are
negotiated ad hoc depending on the size of the Cuban harvest and
Cuba's convertible currency requirements. We believe that Havana
otherwise would have been unable to find hard currency markets
for most of this sugar, in the face of declining global consumption
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Figure 5
Cuba: Per Capita Soviet Economic Assistance
140 percent over the same period-nearly the same as
the 145-percent average of non-OPEC LDCs financ-
ing oil imports. We believe that the centrally planned
economy and low worker productivity were the main
us $ factors behind Havana's lag.
25X1
Because about 80 percent of Cuba's trade is with
Soviet Bloc countries where its terms of trade are
protected, Havana was not affected as negatively as
other LDCs by the drop in commodity prices after
-L
1971 72
1980. As a result, Cuban growth for 1981-83 is
expected to average 2.3 percent compared to about
1.2 percent for non-OPEC LDCs. Nevertheless, Ha-
vana was not totally sheltered from international
I I I market and financial conditions during this period,
which worked to deteriorate its economic dealings
with the West and make Soviet aid increasingly 25X1
important.
? Another way Moscow has eased Havana's hard
currency constraints is by intermediating its pur-
chases. Thus, Cuba receives over 1 million tons of
grain annually from Canada, with Moscow paying
Ottawa hard currency but charging Cuba soft cur-
rency, saving Havana $200-300 million a year.
Without these direct and indirect cash infusions,
Cuba, in our view, would have run up deficits during
1981 and early 1982 that probably would have re-
quired rescheduling its convertible currency debt
months before the actual request in August 1982.
Despite the large scale of all this aid, the Cuban
economy was not able to grow faster than other non-
OPEC LDCs, which achieved an average annual real
growth of 4.7 percent for the 1976-80 period com-
pared to our estimated 3.4 percent for Cuba.6 More-
over, Cuba's hard currency debt increased by about
6 In 1981 Cuba received about $165 per person in official develop-
ment assistance from the Soviet Union, Eastern Europe, and the
West, or about six and a half times the amount received by the
average middle-income developing country
Cuba's current economic downswing began in late
1980 with the sharp fall in the world price of sugar- 25X1
the source of over half of Havana's hard currency
export earnings. Constrained by export- restrictions
imposed by the International Sugar Organization,
export obligations to soft currency customers, and the
size of its harvest, Cuba was not able to increase the
volume of world market sugar sales enough to offset
the 70-percent decline in prices between 1980 and
1982. Increased hard currency purchases for sugar by
the USSR and China and earnings from Havana's
other major sources of foreign exchange-nickel,
seafood, tobacco, and tourism-did not fill the gap. 25X1
At the same time, interest payments on debt increased
by over 50 percent from 1979 to 1982, and many of 25X1
Cuba's requests for new credits were turned down as
lenders became more wary about Third World and
Communist countries. Moreover, in 1982 internation-
al bankers, seeing vigorous US lobbying against
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Table 2
Soviet Hard Currency Flows to Cuba a
Average
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982 Total
1983b
Annual
1961-70
1961-82
Total
55
62
69
73
123
601
Soviet sugar purchases
0
0
0
0
0
424
159
223
126
134
0
168
291
1,525
0
Grain/flour exports
55
62 .
69
73
123
174
173
216
133
213
234
319
266
2,605
250
Other c
0
0
0
0
0
3
11
107
31
9
141
216
216
734
200
a Based on Soviet and Cuban trade data.
b Projected.
c As reported in Cuban trade data, not further specified.
lending to Cuba, withdrew over $500 million of the
short-term deposits in Cuban banks, or 35 percent of
the 1981 level.
To deal with these changes, Havana slashed its
imports from the West by about 40 percent from 1980
to 1982 and cut other convertible currency expenses
such as embassy budgets. These measures proved
insufficient and domestically costly, however, as
growth dropped to an estimated 1.4 percent in 1982
from 5.4 percent in 1981, largely due to the reduction
in imported inputs vital to such basic industries as
steel and construction.
Lacking sufficient inflow of funds, the Castro govern-
ment drew down its foreign exchange reserves by 75
percent between 1981 and mid-1982 to cover immedi-
ate financial obligations according to Cuban statistics
released to its creditors. With reserves sufficient to
cover only six weeks of imports, Havana requested a
rescheduling of its medium- and long-term debts in
August 1982. Accordingly, Cuba reached an agree-
ment in March 1983 with its government creditors
that provided for the rescheduling of 95 percent of the
principal due on its medium- and long-term debt from
September 1982 to December 1983 (about $400 mil-
lion) according to open sources. An agreement for
Secret
rescheduling similar debt with commercial banks has
been reached, but signing has been delayed, according
to press reports, by technical problems concerning
Even with the payments relief provided by the debt
rescheduling, Havana's economy remains troubled
this year. Based on partial data from Cuba, we believe
that national output will essentially stagnate this year.
Heavy rains and high winds substantially damaged
the important sugar and tobacco crops as well as
many vegetable crops grown for domestic consump-
tion. Havana probably has benefited somewhat from
the slight rise in sugar prices this year, but not enough
to offset the loss of an estimated 1 million tons from
the crop in 1982 of 8.2 million tons) due to weather
damage. Moreover, it has been forced to expend hard,
currency to purchase some sugar on the world market
to meet its contract obligations, according to Western
trade publications.
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The calamitous drive to produce 10 million tons of
sugar in 1970 marked the final episode in Fidel,
Castro's gamble that the combination of a spectacu-
lar economic performance and guerrilla victories in
Latin America would enable him to fend off domina-
tion by the Soviet Union. With the economy in a
shambles and armed struggle discredited, the Cuban
leader-who was ideologically committed to Com-
munism, and vehemently opposed to Western "impe-
rialism'-had no choice but to accept the conditions
of survival offered by Moscow-basic conformity
with Soviet principles in economics, ideology, politi-
cal organization, and foreign policy.
Havana's efforts to reverse the cooling trend in
relations with Moscow began in the area of foreign
policy in 1968 following the Guevara debacle in
Bolivia in the previous year. After the 1970 harvest,
however, this limited effort broadened into a major
overhaul of Cuba's institutions and international
behavior. The principal steps included:
? The establishment, in December 1970, of a Cuban-
Soviet Commission of Economic, Scientific, and
Technical Collaboration, which became an instru-
ment for strong Soviet influence over Cuban eco-
nomic policy formation.
? The Cuban accession in mid-1972 to full member-
ship in CEMA.
? The total reorganization in November 1972 of all
elements of the Cuban Government.
? The initiation of a new Cuban foreign policy em-
phasizing normalized state-to-state relations and
sharply reducing Havana's support to revolutionary
movements.
? Soviet agreement in late 1972 to significantly in-
crease technical and economic aid and to defer
Cuba's accumulated debt until 1986.
? The reorganization, from the ground up, of all mass
organizations in 1973 and delineation of their
functions along Soviet lines. 25X1
? The establishment by late 1975 of the Soviet-
directed "System for Economic Management and
Planning" and the inauguration of Cuba's First
Five-Year Plan. The system decentralized manage-
ment, established financial autonomy for state en-
terprises, legitimized material incentives, aban-
doned the reliance on "voluntary" labor
mobilizations, and eliminated Castro's infamous
crash programs and "special plans. "
? The convening in December 1975 of the long-
postponed first congress of the Cuban Communist
Party and a reorientation of the party's role to
correspond with the Soviet and East European
models.
? The adoption in 1976 of a new constitution, which
conformed to the letter and spirit of the Soviet
constitutions.
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Although the USSR is by far Cuba's largest donor,
East European countries-through CEMA and bilat-
eral channels-have delivered sizable amounts of soft
currency economic aid. Cuban data indicate that
Eastern Europe primarily Bulgaria, East Germany,
Hungary, and Poland provided about $600 million
in development aid and trade credits during 1976-80
and nearly the same amount already during the first
two years of the 1981-85 Five-Year Plan. In addition,
these countries pay a preferential price for sugar,
although not as high as the price Moscow pays. In
1976-80, for example, the average price paid by East
European countries for Cuban sugar was 23 cents per
pound, amounting to a $640 million subsidy during
this period. Moscow paid an average of 36 cents per
pound, while the world market price averaged 13
cents during this time. (The price paid by East
European countries, set in five-year trade agreements,
remained fairly stable, in peso terms, over the 1976-
80 period. The price paid by the USSR has risen
annually as the price charged Cuba for its oil imports
from the USSR increased.) Based on our projections
of world sugar prices and Cuban trade data, we
believe that sugar subsidies are likely to be at least
as much and probably more during the 1981-85
period.
development assistance disbursed to Cuba by individ-
ual OECD and OPEC countries and multilateral
organizations has totaled $260 million during 1971-
81. About half of this amount is allocated through
bilateral programs, with Sweden and the Netherlands
the largest contributors. Projects funded include
training for tourism, equipment for the sugar indus-
try, and laboratory equipment for medical research.
The remainder is from various UN agencies. Pro-
grams financed include educational development, an
experimental paper plant using bagasse (a sugarcane
processing byproduct), and renovation of Old Havana.
This aid probably will continue to fluctuate, but is
unlikely to rise above the $50 million annual levels of
the late 1970s, due to the plight of needier countries
elsewhere and the limit offunds available to multina-
tional organizations.
The other major source of external savings for Cuba
has been public and private nonconcessionary credits,
which at the end of 1982 totaled some $3.2 billion (30
percent of which consisted of short-term deposits in
Cuban banks). This has proved to be a mixed blessing
in recent years, as Cuba's interest payments-like
those of other LDCs-markedly increased, and ac-
cess to new funds subsequently dried up.
Hard currency aid from Western nations and organi-
zations is of a much smaller magnitude. Official
Near-Term Trade and Aid Prospects
Dimensions of the Problem
Due to Havana's weakened creditworthiness and its
poor sugar and tobacco crops this year, we believe
that its hard currency import capacity in 1983 will
remain at or below 1982's depressed level of $760
million. We expect higher sugar earnings to permit an
increase in Havana's convertible currency imports in
1984 and 1985, perhaps to $1.1 billion by 1985 but
still below yearly purchases worth $1.3-1.4 billion
during 1980 and 1981. Havana, therefore, will be-
come increasingly dependent on soft currency imports
to generate any growth through the mid-1980s.
The volume of Cuban exports to the USSR and
Eastern Europe will probably rise somewhat after
sugar production recovers and a new nickel plant
comes on stream in early 1984.8
Nevertheless, the overall value of Cuban sales, even
with preferential sugar prices, is unlikely to increase
enough to offset growing import needs. Thus, Soviet
8 Havana's development plans call for production of 10 to 10.5
million tons of sugar in 1985. Last year's harvest yielded 8.2 million
tons. The crop this year probably will be limited to about 7.2
million tons because of the storm damage and adverse weather that
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Table 3
Cuba: Aid From Non-Soviet Sources a
Million US $
Official net
development
assistance
35.7
46.1
48.7
48.8
32.0
Bilateral
26.0
29.7
17.4
33.9
11.1
Multilateral
9.7
16.4
31.3
14.9
20.9
Eastern Europe
110.0
295.0
314.0
272.0
246.0
Sugar subsidy
107.0
164.0
176.0
203.0
-11.0
Development aid
3.0
131.0
138.0
69.0
257.0
a Aid from Eastern Europe is soft currency; aid from the West is
hard currency.
Bloc financing of Cuban trade deficits will need to
remain at least on the scale of the past three years
(over $1 billion) merely for Havana to maintain its
1982 volume of imports.
Moscow's Attitudes
For the most part, the levels of trade and aid between
Cuba and the Soviet Union through 1985 have al-
ready been established as part of the five-year trade
agreement. Moscow is likely to meet the commit-
ments set in this agreement even if Cuba's exports fall
short of plan because of weather-related crop prob-
lems. At the same time, because Moscow incorporates
commitments made in its five-year trade agreements
in its own domestic production planning process, we
doubt Moscow will commit itself to supplying Cuba
goods beyond those offered in the 1981-85 trade
agreement or otherwise become more generous. More
likely-unless Cuba's economic position experiences
more damage by natural disaster or sanctions imposed
by the West-Moscow will look for ways to make
Cuba a less expensive client.
Figure 6
Cuba: Estimated Real GNP Growth
6
1 1
1976 77 78 79 80 81 82
Changes in Scope and Form
We expect Moscow's soft currency economic assist-
ance in 1983 (as presented in table 1) to remain
high-about $4-4.5 billion, or the same as last year.
We believe that this aid probably will decline over the
following two years to the $3-4 billion range, largely
due Yo the cuts in the petroleum subsidy. In addition,
Moscow's hard currency transactions with Cuba will
drop this year, but are likely to return to the $700-800
million range in 1984 and 1985.
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Cuban officials maintain in public speeches and docu-
ments that the USSR has "guaranteed" 220,000 to
240,000 b/d of oil during 1981-85, but available
evidence indicates that deliveries have ranged from
200,000 to 210,000 b/d in 1981 and 1982 and are
following a similar pattern this year. We believe that
this volume will continue through 1985, but that the
implicit subsidy will decline dramatically during the
period, because of the pricing formula, which is based
on a moving average of the world price of oil over the
previous five years. Thus, the steep OPEC increases
since 1979 are still working their way through the
formula. This year the subsidy is projected to be about
$300 million, compared to last year's $1 billion.
Moreover, if world oil prices remain at or near the
current level, the oil subsidy should approach zero by
1985 because the moving average price charged by
the USSR will become roughly equivalent to the
world price.
Cuban trade data indicate that Soviet hard currency
purchases of goods other than sugar will continue at
the 1982 level of $200 million annually through 1985.
These purchases fluctuated widely during 1975-79
but have been consistently high since 1979. While we
have no evidence to indicate what goods are included
in this account, at least part could represent credit for
petroleum that was not consumed by Cuba.
the Cuban press, reported that a
1981 agreement offered Cuba convertible currency
credits for oil saved from its protocol allotment.' This
Soviet incentive, unique to its trade with Cuba,
probably represents an effort to lessen Havana's
energy dependence without imposing the hardships of
abrupt declines in oil shipments. Recent public state-
ments by Cuban officials indicate that they plan to
earn as much as $200 million a year between now and
1985 by using oil sparingly.
Moscow probably will continue to purchase some
sugar from Cuba with convertible currency. A poor
Cuban harvest this year, however, will keep the
amount low at best. As Cuba's sugar output recovers
in 1984 and 1985, Moscow is likely to purchase on the
' The announcement did not specify the details of the agreement,
but we believe that the arrangement is based on the difference
between actual oil deliveries and the amount called for in the
annual protocol.
order of 500,000 tons annually. Nevertheless, the
Soviets apparently increased the protocol-stipulated
amount of Cuban sugar deliveries to 3.5 million tons
(from about 3 million) this year and may increase it
again during negotiations for the 1986-90 trade
agreement.
Despite the poor crop this year, we estimate that the
value of the sugar subsidy will increase based on (1) an
increase reported by the US Interests Section in
Havana-of about 5 cents per pound-to 50 cents per
pound in the price Moscow pays and (2) little improve-
ment in this year's average world sugar price. Beyond
1983, as world-and consequently CEMA-oil prices'
level off, so in all likelihood will the subsidized sugar
prices to which they are linked.
We expect the rate of growth in the volume of grain
and flour that the USSR purchases for Cuba to
decline over the next few years since it expanded more
than five times faster than the population during
1970-82. We believe the Soviets may encourage Cuba
to utilize its $70 million Argentine credit line for corn
purchases-in order to decrease their own burden.10F-
Preliminary Soviet trade data indicate that its total
development aid to Cuba will remain large-between
$1 billion and $1.1 billion-in 1983. In 1984 and
1985 we expect this aid to remain near this range.
Project aid is scheduled to rise by 80 percent during
1981-85 to roughly $3 billion for the entire period,
according to public statements by Soviet officials." In
" In the mid-1970s, following Argentina's extension of a $1.2
billion, six-year credit line to Cuba, the latter imported 100,000 to
200,000 tons of corn annually or 30 to 50 percent of its total
imports of corn. In the late 1970s, however, Cuba stopped drawing
on the credit line and doubled its imports of corn from the USSR.
" Important projects that are being developed with this aid include
a nuclear power plant scheduled to become operational in the late
1980s that will decrease Cuba's oil needs by about 10 percent and a
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addition, Cuba's soft currency trade with the USSR is
likely to remain in a deficit position-probably on the
order of $500 million annually-through 1985.F-
Cuba cannot afford to draw upon petroleum reserves
for a sustained period of time to make up for de-
creased deliveries. We do not know Cuba's current
refined oil reserves but, even if its oil storage tanks
were full, Cuba would need, at current import rates,
to almost totally deplete the tanks by 1985 just to
bring its annual consumption in 1983-85 up to the
1981 level." We believe fears of a US naval blockade
According to Cuban data, repayments of this aid will
begin to come due in 1985. Though Havana may be
able to expand its export production enough to make
the $125 million payment that year, the problem will
only become worse in 1986 when the grace period on
Cuba's recently rescheduled hard currency debt also
expires. We believe Havana is likely to give these
latter debts priority to preserve its reputation for
honoring commitments to- the West, and Moscow
probably will again reschedule or perhaps even excuse
Cuba's debt.
Economic Impact of Aid Stagnation
'The expected decline in total soft-currency Soviet aid
in 1984 and 1985 will result in a reduction in the
growth of Cuba's imports from Moscow. Besides oil,
consumer goods as well as capital goods not connected
to certain Soviet-funded projects are the most likely
areas for reductions in the rate of increase. Such
reductions will have little effect on Cuba's economic
activity during those years, but will likely contribute
to slower growth beyond 1985 as capital investment
projects are delayed or postponed.
Because petroleum deliveries are expected to stagnate,
Cuba will almost certainly experience slower econom-
ic growth despite fuel conservation efforts. The vol-
ume of deliveries increased an average 6 percent
annually during 1976-80, rose 3 percent in 1981, and
dropped 7 percent in 1982. Oil imports thus far in
1983 are slightly lower than for the same period last
year. We believe Cuba requested lower deliveries in
order to earn convertible currency for the amount it
saved in accordance with the incentive plan Moscow
offered in late 1981. We further believe that Havana's
hard currency needs through 1985 will force it to
continue to rely on this source of funds. Thus, we do
not expect deliveries to rise to the 1981 level again
during this five-year plan even though energy de-
mands will increase as a number of new factories
open.
will preclude the tapping of reserves.
We have no evidence that the fall of petroleum
imports in 1982 and 1983 has resulted in shortages.
Economic activity has been slower during the last two
years, however, due to the lack of foreign exchange
for vital imports for industry and transportation sec-
tors. Thus, petroleum demand in these sectors-which
account for over 70 percent of total oil demand-
probably was depressed.
We believe the decline in oil deliveries will be felt in
1984 and 1985, however, as economic growth is
expected to pick up-albeit moderately. A new nickel
plant is scheduled to come on line during this period,
and this alone will increase total oil demand by more
than 5 percent. In addition, thermoelectric power
plants scheduled to open could raise needs by an
additional 3 to 5 percent.
Based on the regime's past practices, we expect
consumers to bear the brunt of any oil shortages
through brownouts to homes and industries that
produce for domestic consumption and decreased
availability' of public transportation. Such measures
probably would result in a moderate reduction in
economic activity, a decrease in living standards,
increased worker absenteeism and lower labor produc-
tivity.
Every attempt would be made to preserve export
production and shipment. Sugar is the easiest export
to protect since most of its energy requirements are
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satisfied by bagasse-a byproduct of sugarcane mill-
ing. Tobacco harvesting and processing also uses only
minimal amounts of petroleum. The export industries
most dependent on oil are nickel and seafood. More-
over, all exports depend on the cargo transportation
sector, a heavy petroleum user.
Cuban officials reportedly are already concerned that
Soviet economic aid will decline in coming years. Vice
President Carlos Rafael Rodriguez, for example=
expected Soviet economic
difficulties to lead to a diminution or cessation of
subsidies within the next few years. In addition,
during a recent meeting in Moscow with US Embassy
officials, Soviet specialists on Latin America stated
that "Cuba has got to stand on its own two feet." We
believe, on the basis of this reporting and the history
of Moscow's aid relations with Havana, that Cuban
officials probably are receiving a similar message
directly from Moscow.
The prospect of a leveling of aid and stagnating or
decreased petroleum deliveries is likely to renew
debate within the Cuban leadership over economic
policy, especially over the issue of motivating the
labor force over the next several years. In our judg-
ment, pragmatists and technocrats will press again for
material incentives, reducing selected restrictions on
private enterprise activities and greater autonomy for
enterprise managers. Such policies, which go against
the ideological grain of the dominate "hardliners,"
are, however, unlikely to be adopted without explicit
urging from the Soviets." Havana has implemented a
few economic liberalization measures in recent years,
" The so-called hardliners are primarily ex-guerrillas from the
struggle against Batista. More than three-fourths of the Politburo
fall into this category. They are politically unsophisticated, tend to
view the world in black and white terms, and are intensely anti-
American. Moderates in the hierarchy include veterans of the pre-
Castro Communist Party and a younger group of "technocrats"
who are largely responsible for the daily operation of the economy.
The "old Communists" are prone to represent Soviet interests in
policy discussions and have a more solid background in economic
and political administration. Because of their advanced age, howev-
and we believe these ventures were pushed by the
pragmatists. The most important of these-the farm-
ers' free markets-were curtailed after about two
years despite their evident success in stimulating
productivity. Cuban Communist Party newspaper ac-
counts indicated that ideological purists in the regime
judged that the negative political and "moral" ef-
fects-the rise of "capitalist" behavior, for example-
outweighed the economic benefits.
Although Fidel Castro is, in our view, more pragmatic
and sophisticated than the purists, he generally sees
any movement toward economic liberalization as a
necessary evil that serves only to resolve short-term
problems. Like his hardline colleagues in the hierar-
chy, he fears that such reforms will lead to a popular
desire for additional liberalization and a decentraliza-
tion of economic decision making. For these reasons,
as long as Fidel Castro remains in power, significant
economic liberalizations are unlikely in Cuba unless
the USSR presses hard for their implementation-an
action we believe is unlikely in the next couple of
years. In Castro's mind, motivation of the population
must be accomplished through verbal exhortation,
ideological education, and repression. In periods of
economic difficulty, he has sided with the hardliners
who assert that tough measures are necessary to
achieve improved productivity and to encourage prop-
er "socialist behavior."
market or criminal activities.
The retreat on economic liberalization such as the
restrictions placed on the farmers' free markets has
been followed by other signs that the Castro regime
intends to pursue the hardline approach over the next
several years. In mid-August, the Cuban party news-
paper described Moscow's emphasis on labor disci-
pline to improve Soviet productivity. According to the
US Interests Section in Havana, the story could be a
warning that the Castro regime will crack down on
absenteeism and other worker misdemeanors. The
government also recently announced that it would
begin enforcing a 1977 law-ignored by the authori-
ties until now-to prevent the illegal occupation of
vacant government-owned buildings and other proper-
ty in Havana. The US Interests Section sees this-
and we agree-as a move targeted at individuals
living illegally in Havana and engaging in black
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The Math and Mechanics
of Moscow's Aid
Soviet economic support to Cuba as presented in
table. 1far exceeds the amount Moscow supplies to
all other Third World client states combined. Soviet
economic assistance to Angola, Ethiopia, Mozam-
bique, and Vietnam combined totaled about $1.2
billion in 1982, for example, or only 25 percent of the
amount provided to Cuba. Moreover, the amount of
economic aid provided and the cost of supporting
Cuba have continued to increase while Soviet eco-
nomic support for Eastern Europe has declined mod-
erately.
Figuring the Costs of the Aid
Because the calculation of aid as presented in table 1
combines transfers of resources under economic as-
sistance programs and the opportunity costs of price
subsidies, the actual burden of this aid on the Soviet
Union is difficult to evaluate precisely. We have
constructed, therefore, a method of examining the
costs to the USSR of supporting the Cuban economy
(see appendix B). This approach focuses on the value
of net exports to Cuba, taking into account technical
services, military aid, and other items not included in
the Soviet trade account. Soviet exports and imports
were revalued to roughly approximate world prices to
take account of the price distortions in Soviet-Cuban
trade. The revalued trade surplus represents the
opportunity costs to Moscow of supplying Cuba with
materials that could be sold elsewhere. In 1982, for
example, we estimate that the USSR was forgoing
$2.7-4.2 billion in net hard currency earnings in its
annual trade with Cuba. This sum was equivalent to
8 to 12 percent of total Soviet hard currency earnings
in that year.
Dickering Over Amounts
We have little information on how annual and five-
year negotiations for trade and aid are conducted.
From what we know about pricing and planning 25X1
policies, however, we believe that there is more
flexibility in some forms of aid than in others.
We believe that the pricing formulas that determine
the levels of the trade subsidies are the most rigid
form of aid, and therefore least likely to be influ-
enced by the state of relations-which at any rate
fluctuate in a narrow range-between Havana and
Moscow at the time of negotiations. The basic pricing
formula was established in the mid-1970s and links
the price the USSR charges for its oil exports to
Cuba to the price it pays for its sugar imports from
Cuba. The price of oil and other Soviet exports to
Cuba is determined by criteria established in CEMA.
We judge that the level of development assistance-
project aid and financing of Cuba's soft currency
trade deficits-Moscow agrees to provide Havana in
negotiations is subject, at the margin, to the state of
relations at the time of negotiations: The level of this
aid is based on the USSR's commitment to maintain-
ing and developing the Cuban economy.
The forms of assistance most likely to be influenced
by the relative peaks and troughs in Soviet-Cuban
relations are those involving direct hard currency
transfers from the USSR to Cuba. These include
purchases of sugar for hard currency and granting
convertible currency credits for oil that Havana
saves. These transfers apparently are not established
in plans but negotiated ad hoc and therefore are more
subject to change.
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1iANDROPOV,TUESTAS
SEGVRO QUE EL"SATELITE
RUSO'QUE SE ESTP.CAYENDO
NO soy YO?
Text: "Andropov, are you sure that the falling 'Russian Satellite'
is not me? " (Headlines read: "Russian Satellite to fall soon.')
In the future, Moscow will continue to look for the
kinds of political and military benefits it has derived
from Cuba in the past. Havana, for example, has been
a valuable ally in assisting Moscow's Third World
policies. Cuban military personnel played a key role in
preserving pro-Soviet regimes in Angola in 1975-76
and Ethiopia in 1977-78. In addition, Cuban support
was an important factor in the Sandinista victory in
Nicaragua in July 1979. There are some 60,000
Cuban military and civilian advisers in Third World
countries-primarily Africa-where a large-scale So-
viet presence might be viewed with alarm by local and
Western leaders.
Castro has also promoted the USSR's political posi-
tion on various international issues. He has been
especially aggressive in defending Moscow in the
Nonaligned Movement (NAM). This has, on some
occasions, imposed a political cost on Havana. For
example, Castro's endorsement of the Soviet invasion
of Afghanistan undermined his credibility as the then
NAM chairman.
In addition, Cuba has and will continue to afford the
Soviets valuable military facilities in the Western
Hemisphere. Soviet naval reconnaissance and antisub-
marine warfare aircraft frequently stage from Cuban
airfields to monitor US military activities in the
Cuban ports are used by
Soviet naval vessels for replenishment and repairs
during deployments to the Caribbean region.
As long as Moscow continues to derive these kinds of
benefits from Havana, we judge that it will not slash
its trade and aid to Cuba. At the same time, however,
Moscow has made it clear that there are limits to its
economic support. As long as Castro's position is not
endangered by a sharper economic downturn than we
now foresee, we believe he will continue to provide
these benefits and be content to continue the march of
his political revolution. Barring major economic disas-
ters aid is therefore likely to remain in a rather
narrow range in accordance with pricing formulas and
plans.
Cuba's near total dependence on Moscow will have
some substantial implications for its foreign policy
over the next several years, however. We believe that
Castro is likely to work even harder to enhance
Cuba's political and military value to the USSR in
order to maximize Soviet aid flows and deflect possi-
ble demands from Moscow for policy changes. Ha-
vana almost certainly will continue to demonstrate
strong political support for its patron despite the
damage it does to Cuba's credibility among Third
World nations. Cuba's slavish defense of Soviet ac-
tions in the controversy over the downing of a Korean
jetliner this year was a dramatic example of this
tendency. Such actions will hamper Cuba's attempts
to play on the sentiment that exists in some Western
countries-France and Sweden, for example-that
calls for closer economic ties with Havana to "wean"
Cuba away from the USSR. In Castro's view, how-
ever, the island's very survival depends on massive
Soviet aid, and the continuation of this aid far
outweighs the cost to Havana's image caused by
defending Moscow's foreign policy.
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Indicators of Change in
Soviet-Cuban Relationship
There are a number of indicators that can be moni-
tored to determine to what extent Moscow is willing
to support the Cuban economy. Direct indicators
include:
? The protocol-stipulated volume of oil deliveries set
in the next five-year plan.
? The volume of grain the USSR purchases for
Havana.
? The protocol-stipulated volume of sugar set in
annual and five-year plans.
? The volume of sugar Moscow purchases for hard
currency (when Cuba has extra sugar to sell).
? The amount of development aid granted in the next
five-year agreement.
? Moscow's leniency regarding Cuban repayment of
debts.
Some events that could indirectly signal a change
include:
? Visits to Cuba by high-level Soviet economic offi-
cials who do not normally take part in the Soviet-
Cuban economic planning process.
? Veiled criticism in Soviet media of Cuban economic
performance or foreign policy.
? A shakeup in the Cuban leadership of people
dealing with economic policy.
'Alternatively, Castro's natural enthusiasm for region-
al interventionist activities could well be bounded
increasingly by Soviet interests. Should the USSR
judge that Cuba's actions in Central America threat-
en a 'military confrontation between Havana and the
United'States,'the Soviets probably would continue to
advise' the Castro regime to modify its tactics. In the
1960s the Cuban leader ignored Moscow's demands
to alter his revolutionary strategies and was able for
several years to support guerrilla movements in nu-
merous Latin American nations in spite of strong
Soviet criticism. Only when Moscow backed up its
criticism with cuts in the rate of growth of oil
deliveries did Castro moderate his positions. Castro-
presently critically dependent on Soviet aid-now has
little room for maneuver and would have to bow
quickly to Soviet dictates. In addition, Castro's ac-
tions are limited by his awareness that he cannot
expect Soviet military forces to come to his aid in the
event he provokes a military confrontation with the
United States over Central America.
These limitations, in our judgment, will strongly
influence the conduct of Cuban foreign policy. Not
only will Castro find it difficult to refuse a Soviet
request to provide military support for a pro-Moscow
regime in the Third World, he will have to coordinate
even more carefully his own foreign initiatives with 25X1
For the same reasons, we believe that Cuba's overseas
role will become even more subservient to Soviet
foreign policy objectives. For example, should the
military situation in Angola deteriorate further, Ha-
vana may have little choice but to increase its military
participation despite the increasing unpopularity of
the policy at home. Similarly, Castro is likely to
quickly serve additional Soviet interests, perhaps by
sending military personnel or civilian technicians to
help new Soviet clients. In addition, the Cuban leader
may increase his support to selected leftist groups in
the Caribbean, for personal revenge over his setback
in Grenada, as well as to support Soviet interests. F_
15
the USSR. Such coordination most likely will be
especially necessary in areas that impact on US
sensitivities. As a result, Castro probably will find
himself constrained from making autonomous tactical
decisions concerning the level of Cuban support to
guerrilla organizations in Central America.
In addition, the Cuban leader probably will have to 25X1
ensure that Cuban support to other guerrilla groups
such as the M-19 in Colombia is in concert with
Soviet objectives in the area. Moreover, Havana
probably will have to take care that its political
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activities in nations such as Mexico, Panama, Venezu-
ela, and Peru do not cause a backlash against Soviet
interests in those countries.
Because of his unique and close relationship with the
Sandinista leaders in Nicaragua, we believe Castro
would go further in acting independently of Moscow
with regard to that country than on any other foreign
policy issue, especially if he perceived a danger to the
large number of Cuban personnel stationed there.
Nevertheless, if confronted with strong Soviet pres-
sure, he would be forced to acquiesce.
Castro's deeply held antipathy toward the United
States over the past 25 years and his dominance over
Cuban policy demonstrates, in our view, that as long
as he remains in power, the United States will have
little direct leverage on Cuban policies and, short of
war, can do little to reduce the military value of Cuba
to the USSR. On the other hand, Cuba's bleak
economic outlook will increase the opportunity for the
United States to have indirect influence in some
areas.
US demarches to Cuba's official creditors for exam-
ple, may help to reduce the flow of Western credit to
Havana or tighten conditions for future reschedulings,
though some European countries, particularly Spain,
probably will resist such efforts for various political or
historical reasons. Propaganda and other actions de-
signed to undermine confidence in Cuba as a credit
risk will likely meet increasingly receptive ears with
commercial bankers.
In addition, as consumer disgruntlement and econom-
ic crime increases in Cuba, opportunities for the
United States to exploit these feelings will be en-
hanced. Moreover, if-as we expect-the regime re-
sponds by resorting more frequently to repressive
measures such as executions of common criminals, its
image in the Third World can be undermined if
attention is focused on the blatant and severe human
rights violations against overt opponents of the gov-
ernment. Eventually, however, Castro is likely to be
tempted to export the dissidents as he did in 1980.
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Appendix A
Soviet Military Assistance 14
Cuba receives all of its military equipment, supplies,
and advisers from the Soviet Union. According to
public statements by Cuban officials, it is supplied
free of charge. Neither the Cubans nor the Soviets
publish any statistics on the volume or value of these
equipment and services, and they actively attempt to
conceal them. The value of military aid from the
USSR that is listed below is based on estimates of the
total tonnage delivered and the cost of some of the
major weapons identified. Ships and aircraft delivered
in 1982, for example, are estimated to be worth at
least $485 million at current world market prices:
air attack or naval blockade. The increased level of
Soviet military aid has allowed Cuba to modernize
significantly its Air Force and Navy since 1975 and
has provided Havana with formidable defensive capa-
bilities as well as an improved capability to project
military power in the Caribbean region. We believe
that the, modernization of Cuba's naval and air de-
fense forces will continue over the next several years.
The annual volume of arms deliveries, however, prob-
ably will be somewhat less than the 1981 peak.
1971
40
1977
95
1972
70
1978
350
1973
65
1979
260
1974
60
1980
260
1975
70
1981
795
1976
130
1982
940
(S NF)
The tonnage of Soviet arms deliveries to Cuba in 1982
fell from the 1981 high of 45,000 tons to about 25,000
tons. Shipments of military-associated equipment and
spare parts increased substantially, however, bringing
the total tonnage of military deliveries for 1982 close
to the 1981 figure of 63,700 tons. Preliminary data for
the first six months of 1983 suggest that arms are
being delivered at about the same pace as last year,
but shipments of military-associated equipment have
dropped.
Soviet military aid to Cuba provides a visible and
concrete affirmation of Moscow's support for Castro
and is partially a response to his pleas for more
effective weapons to defend against the threat of a US
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Appendix B
Methodological Notes on
Economic Calculations
A useful criterion for assessing the burden of Soviet
aid to Cuba on the Soviet economy is the net amount
of hard currency foregone by Moscow-that is, what
Soviet exports of goods and services to Cuba would
have earned if these were sold on world markets
minus what Moscow would have to spend in world
markets for imports from Cuba. With the exception of
some Soviet purchases of Cuban sugar and a few
other commodities for hard currency, Soviet trade
with Cuba occurs at negotiated prices. Except for
sugar, these prices seem to be based on the criteria
generally accepted within the Council of Mutual
Economic Assistance (CEMA). CEMA prices often
differ from world market prices, especially on oil. In
addition, the low quality of many Soviet manufac-
tured goods precludes their sale on the world market.
Consequently, we' have adjusted Soviet trade data in
order to reflect what the Soviets could genuinely earn
if they could sell on the world market the goods that
they trade with Cuba.
In preparing our estimates of the world market value
of Moscow's net exports to Cuba for 1979-82, we first
examined the value of Soviet merchandise imports
from Cuba as reported in official Soviet and Cuban
data. The data were disaggregated by major commod-
ity-sugar, nickel, citrus, and other. The last category
includes Soviet hard currency payments for imports
from Cuba reported in Cuban statistics, but not
accounted for in Soviet trade data. These imports
were then valued at world market prices, which
substantially reduce their value-from nearly $4 bil-
lion at Soviet prices in 1982, for example, to about
$1.4 billion at market prices. Nearly all of the
difference is attributed to the preferential price Mos-
cow pays for its Cuban sugar imports.
We performed a similar process on the value of Soviet
merchandise exports to Cuba, using official Soviet
data. Petroleum, accounting for 30 to 35 percent of
Cuban imports (nominal value terms) from the USSR
in recent years, is sold to Cuba for concessionary
prices. In addition, the USSR supplies Cuba with a
wide range of raw materials including lumber, steel,
chemicals, and cotton that can be sold on hard
currency markets at or near the price Moscow charges
Cuba. Such sales-which account for nearly 25 per-
cent of Soviet exports to Cuba-would have earned
Moscow $800-950 million per year on the world
market in 1979-82.
r
Approximately 45 percent of the USSR's exports to
Cuba consist of finished manufactured commodities,
mainly machinery and transport equipment that are
not easily marketable elsewhere due to their poor
quality by Western standards. To sell these products
for foreign exchange would require substantial dis-
counts-by up to 60 percent based on a survey of a
handful of commodities for which unit values can be
derived-on the prices charged to Cuba. For the
purpose of this paper, we estimate that'60 percent of 25X1
the value of Soviet manufactured exports could find
convertible currency purchasers in the long run. l
In the short term, however, the opportunity cost to the
USSR of this trade with Cuba would be less. It would
take the USSR a considerable amount of time to
develop alternative markets and improve the quality
of its goods so as to make them salable in the West.
Time-consuming negotiations would be necessary to
arrange for Soviet construction of large projects simi-
lar to those currently being built for Cuba. For
illustrative purposes, we assumed that only 25 percent
of the value of Cuban imports of Soviet manufactured
commodities could immediately find new markets.
We estimated the shipping costs on Soviet exports to
Cuba based on the average 1977-81 ratio of the f.o.b.
value of Soviet reported exports to Cuba to the c.i.f.
value of Cuban reported imports from the USSR. We
believe these freight charges are reasonably compara-
ble to world freight rates, at least over the long run.
We assumed that 50 percent of the freight charges
could be recovered in hard currency in the short term.
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Table 4
USSR: Net Hard Currency Earnings Forgone
in Trade With Cuba
Merchandise imports (f.o.b)
_ Citrus fruits
Others
Merchandise exports (f.o.b)
Commodities at concessionary
prices (petroleum)
Commodities at or near world
prices
Total exports
Net exports, long-term
Net exports, short-term
1979
1980
1981
1982
1983b
3,277
3,187
3,069
3,955
3,855-4,405
3,118
2,861
2,538
3,417
3,305-3,855
98
126
256
239
250
15
21
30
34
40
46
179
245
265
260
3,233
3,524
3,829
4,321
4,800-4,900
884
942
1,181
1,500
1,825
807
833
951
2,025-2,125
590
625
1,190
1,380
1,080-1,290
430-440
40
45
50
50
50
260
260
795
940
600-800
3,823
4,149
5,019
5,701
5,880-6,190
546
962
1,950
1,746
1,475-2,335
a Based on official Cuban and Soviet trade data.
b Projected.
c Based on official Cuban trade data only.
1979
1980
1981
1982
1983b
940
2,034
1,703
1,375
1,145-1,322
794
1,696
1,172
837
595-772
85
138
256
239
250
15
21
30
34
40
46
179
245
265
260
2,997
4,304
4,807
4,577
4,290-4,350
1,265
2,422
2,838
2,506
2,125
- 925
1,049
1,018
1,126
1,215-1,275
486
521
872
1,004
840-970
290
320
345
390
430-440
40
45
50
50
50
156
156
477
564
360-480
3,483
4,825
5,679
5,581
5,130-5,320
2,543
2,791
3,976
4,206
3,808-4,175
1,663
1,818
2,683
2,740
2,474-2,681
The value of technical services over the long term-
what Moscow could receive on the world market for
its economic advisers and technicians currently serv-
ing in Cuba-was estimated based on what Moscow
charges for these advisers elsewhere. It was assumed
that, in the short term, none of these services could
find hard currency markets in the West. The world
market value of military deliveries in the long run is
estimated at-60 percent of the nominal value and at
zero in the short run.
The extension of the data series into 1983 entailed all
of the techniques described above. Projections of
Soviet imports from Cuba were based primarily on
our estimate of 3-3.5 million tons of sugar at a Soviet
price of 50 cents per pound. The estimated range for
Soviet exports to Cuba is based on Soviet export data
for the first half of the year. A study of past
semiannual export patterns shows no significant devi-
ations between first and second half-year exports;
thus, the amount reported was doubled to obtain a
projection for the entire year.
The difference between the revalued Soviet exports to
and imports from Cuba, for both the short and long
term, represents the opportunity costs to Moscow of
supplying Cuba with materials that could be sold
elsewhere. We estimate, for example, that the USSR
could have netted about $4 billion over the long term
in both 1981 and 1982, and about $2.5 billion in the
short term for each of those years if it had not had its
commitment to support Cuba. Moreover, we project
that the opportunity cost for 1983 will remain about
$4 billion in the long term and $2.5 billion in the short
term.
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Secret
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