THE COMMUNIST ECONOMIC CAMPAIGN IN THE NEAR EAST AND SOUTH ASIA

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• Document Creation Date: December 27, 2016
• Document Release Date: January 23, 2013
• Sequence Number: 104
• Publication Date: November 30, 1955
• Content Type: IM

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INTELLIGENCE MEMORANDUM
THE COMMUNIST ECONOMIC CAMPAIGN
IN THE NEAR EAST AND SOUTH ASIA
CIA/RR IM-418
30 November 1955
WARNING
THIS MATERIAL CONTAINS INFORMATION AFFECTING THE
NATIONAL DEFENSE OF THE UNITED STATES WITHIN THE
MEANING OF TBE ESPIONAGE LAWS, TITLE 18, USC, SECS.
793 AND 794, THE TRANSMISSION OR REVELATION OF
WHICH IN ANY MANNER TO AN UNAUTHORIZED PERSON IS
PROHIBITED BY LAW,
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
SECRET
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CPITENTS
Summary and Conclusions
I. Nature of the Communist Program
Page
1
1
A. India . . . . ****
00000000
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2
B. Afghanistan
5
C. Egypt
6
D. Additional Bloc Activity .......
.
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7
II.
Size of Effort
7
Appendix
Estimated Value of Communist Credits to Free World
Countries
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CIA/RR IM-418 S-E-C-R-E-T
(CRR Project 00.1008)
THE COMMUNIST ECONOMIC CAMPAIGN
IN THE NEAR EAST AND SOUTH ASIA
Summary and Conclusions
Recent events suggest that, earlier this year, Moscow ordered
a program of economic penetration of the Near East and South Asian
countries. In recent Months the Soviet Bloc has moved from a series
of modest and vague Offers of technical aid and -economic credits to
the threshold of more substantial economic ventures. While Czecho-
slovakia apparently has been chosen to spearhead the arms program in
the Arab world, the economic penetration of southern and southeastern
Asia appears to be a Sitio-Soviet Bloc-wide effort.
Although high-level coordination of the over-all program is ap-
parent, a degree of competition among the Satellites has developed
at lower levels. The range of Communist activity was indicated by
Soviet Ambassador Solod in Cairo, who stated; "We will send economic
missions, scientific missions, agricultural missions ... and any
other kind of mission you can imagine that will help these countries."
In comparison with US aid to underdeveloped countries, the over-
all program of the Sino-Soviet Bloc will, on the whole, be quite
modest. However, the manner in which it is being offered, the terms
of repaymentand the skill in selecting the countries and projects
Involved clearly indicate that the Bloc is seeking to gain the maxi-
mum political advantage. Some of the, deals and 'offers have the
effect of fostering Increased dependence on the Bloc andof influenc-
ing these countries through the long-term presence of Bloc personnel.
I. Nature of the Communist Program.
Receptivity to Sino-Soviet Bloc economic overtures to under-
developed countries has increased as a result of the recent series
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of trips throughout the Bloc by high-level government officials from
these countries. Technical experts as well as diplomats have generally
been impressed with Soviet technology and the "sincere" willingness
of Communist technicians to participate in local development schemes.
In a somewhat typical comment, Major General Sokehy, prominent Indian
scientist who recently returned from a 3-month tour of Czechoslovakia
and the USSR with a plan to make India self-sufficient in essential
drugs with Soviet aid, noted: "It has taken the developed and Advanced
countries 300 years to reach their present state under the capitalist
system. Russia, through a different pattern of society, has come up
to their level within the short span of 36 years. Under a similar
pattern, China is making very rapid progress."
These underdeveloped countries, involved in ambitious development
projects and often burdened with unsalable agricultural surpluses,
find a ready market for these surpluses in the Sino-Soviet Bloc in
exchange for capital equipment and, more recently, arms. Easy credit
terms offered by the Communists are an additional important factor in
making it difficult for such countries to refuse Bloc credits. Most
Communist offers involve low interest rates (2 to 3 percent) and re-
payment over extended periods of time in local currencies and local
products. The Communist program, attractive as it is to underdeveloped
countries, seems assured of continued and growing reception. The fol-
lowing is an account of the more important Bloc contracts, offers, and
activities in specific underdeveloped countries.
A. India.
The Soviet bid to build the l-million-ton capacity steel mill
in Bhilai is the most ambitious Communist project undertaken in the
Free World to date. Under the terms of the contract signed ,on 2 February
1955, Moscow will submit detailed plans this December, at which time New
Delhi can accept or reject the offer. From the Soviet side there is
every evidence that Moscow intends to provide a modern plant, newly
designed from the ground up. Reports that the USSR is attempting to
pass off used equipment are.belied by reports that 'Moscow. has ordered
Soviet machine building plants to draw up new plans. India's new Iron
and Steel Ministry has reportedly sent its top project officers to
Bhilai, and construction of living quarters at the site is apparently
nearing completion. Barring some defect in the Soviet plans -- and
this seems unlikely -- it will be difficult for New Delhi to reject
the offer. The Kremlin's $95 million credit on easy payment terms of
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nothing down and 12 equal payments in local currency at only 2-1/2 per-
cent interest are not likely to be duplicated in Western money markets.
T.T. Krishnamachari, Indian Union Minister of Commerce and Industry,
has stated that the Soviet steel mill would be built and that he per-
sonally was impressed with Soviet technology and technique.
While the steel mill is still subject to final Indian approval,
the Soviet Bloc is actively engaged in several construction projects
in India. On 18 June 1955 the Indian government announced that Moscow
is constructing a diamond mining plant for the Panna. Diamond Syndicate,
a private Indian company. The fact that the government made the announce-
ment suggests that there is governmental involvement in the deal. Since
the Bloc has no indigenous source of industrial diamonds, it is likely
that Moscow would accept payment for the project in diamonds. It is
estimated that the cost of -the project will exceed $6 million.
Since early spring of 1954 the USSR has also offered to supply
India with a cement plant and with aid in the construction of a soda
ash plant and a coal washing plant.
Seven Soviet experts arrived with Premier Bulganin and Party
Secretary Khrushchev in mid-November to advise New Delhi on explora-
tion and development of the oil industry. The USSR has offered to
supply equipment as well as technical assistance in India's vast
mineral development program. The offer includes setting up a plant to
manufacture oil prospecting equipment.
In addition, India has accepted .a Soviet offer, made through
UNESCO, to aid in establishing a technological institute in Bombay.
This assistance will involve sending 15 Soviet experts to instruct at
the institute and provides for 20 Indians to receive advanced training
in Soviet institutions.
Following Nehru's visit to Czechoslovakia in mid-1955, Prague
increased its efforts to gain an economic foothold in India. On 6
November a 13-man Czechoslovak trade delegation led by Foreign Trade
Minister Dvorak arrived in India with proposals to participate in
India's second Five Year Plan, which begins on 1 April 1956. Although
Dvorak pointed out that Czechoslovak capital investment in Indian
industry was unlikely since Prague considered this tantamount to
economic interference, he stated that technical assistance and capital
equipment would be offered.
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The Indian press reported on 10 November that Czechoslovakia
offered to build al-million-ton steel plant costing about $210 mil-
lion to be paid over a 25-year period at a low interest rate. How-
ever, on 15 November, Czechoslovak Foreign Trade Minister Dvorak denied
these reports and noted that.?tthe:9 November meeting with Indian Indus-
try and Commerce Minister T.T. Krishnamachari, Czechoslovakia offered
to supply only equipment for Indian steel plants.
An Indian military delegation in Prague has requested an arms
factory, but not arms themselves. on 1 October, Prime Minister Nehru
accepted a Czechoslovak gift Of a ti;rin-engine sports plane.
Hungary is building a copper wire plant at Patiala in northern
India. The plant will have a capacity of 170,000 pounds of wire and
will be operated, at least initially, by Hungarians. Budapest is also
readying offers to construct a cement plant, a caustic soda factory,
and a soda ash plant. According to an 18 October report, the Hun-
garians have offered to build an arms factory in India in exchange for
Indian goods including red mud containing 14.5 percent titanium, All
of these activities are in the nature of longer term capital credits
and are in addition to the regular trade agreement signed on 10 March.
To date, India has contracted for about $3.6 Million of Com-
munist construction projects. The contracts for the Panna diamond
mine and the steel mill, which seem certain to be signed in the very
near future, would bring the total Communist credits in India to over
$100 million.
The Soviet Bloc penetrated Indian planning circles during 1955.
In reaction to an Indian request for experts, the USSR sent a team of
high-level economists and mathematicians, including a former GOSPLAN
member, to the Indian Statistical InstitUte in .NOvember 1954. Poland
sent one of its top economic planners, Oscar Lange. These men re-
portedly,have taken part, on the highest levels, in the Indian planning
for their forthcoming Five Year Flan, ?The Communist advisors have
left, but Poland's Oscar Lange reportedly will return in 1956. In
addition to Soviet, CzechOslovak,and Polish offers tO assiSt'in
Indian economic planning, the East Germans have recently stated that
they were interested in participating in the Indian second Five Year
Plan.
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India's second Five Year Plan places heavy emphasis on the
rapid development of industry. In terms of Indian resources, however,
the plan is overly ambitious, and there have been hints that New Delhi
will request $1.5 billion in US aid.
In his speech of 19 November welcoming Soviet Premier Bulganin
and Communist Party Chief Khrushchev to New Delhi, Indian Prime Minister
Nehru said: Ne intend to reconstruct our country on the basis of the
socialist path selected by us . In this respect, we consider that
we can learn a great deal on the basis of the great achievements of the
Soviet Union ... ." Moscow's plans for India were suggested by Bulganin,
who said: Ne are prepared to share with you our experience in build-
ing industrial enterprises, power stations, and hydroinstallations, in
the use of atomic energy for peaceful purposes, and other achievements.
At present, all the requisite conditions have been created for the de-
velopment of trade and economic cooperation between the Soviet Union
and India on the basis of real equality of rights and mutual profit."
B. Afghanistan.
Growing economic links with the Sino-Soviet Bloc and Prime
Minister Daud!s anti-Pakistan policy make Afghanistan most immediately
susceptible to Soviet blandishments. During 1954,Prague extended $5 mil-
lion credit and the USSR approximately $6.8 million credit to Afghani-
stan. Under:Czechoslovak credit, one cement'plant is under construc-
tion, while negotiations are being carried on for a cannery, a glass
factory, and a briquette plant. Czechoslovakia reportedly has given
another credit of $10 million and may offer a further $5 million.
Under Soviet credit, gasoline and grain storage facilities, a flour
mill and bakery, and roadbuilding projects are completed or are in
the final stage's of construction. A gasoline pipeline into Afghanistan
from the Soviet barder still is under discussion.
Although the Soviet interest rate is unknown, the Czechoslovaks
have extended credit at an interest rate of 3 percent, repayable in
Afghan exports. (The US Export-Import Bank loans for the large Helmand
Valley irrigation and power project have been at 3-1/2 and 4-1/2 percent.)
In August 1955 there were 127. Soviet technicians reported in
AfghaniStan. Reports persist of more Soviet offers, including a hospital,
university teachers and equipment, and water systems. The USSR re-
portedly has offered to' take over the Helmand Valley project, finish
construction, and pay off the US loan.
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As a direct result of Afghanistan's quarrel with Pakistan,
improvement of roads leading to the USSR is being rushed, and a
new Oxus River port is being developed. Increasing amounts of Free
World - Afghan trade reportedly are now being shipped through the
USSR more quickly and at the same cost or less than by the old route
through Pakistan. Afghanistan has asked the US firm of International
Harvester to ship trucks through the USSR. In addition, Bloc arms --
probably under the $3 million cash deal with Czechoslovakia -- re-
portedly are being delivered.
C. Egypt.
The acceleration of Sino-Soviet Bloc activities in the Near
East, and particularly Egypt, leaves no doubt that this area is now
a prime target for Soviet penetration and neutralization. Although
there have been offers of credits and technical assistance to several
Arab countries, apparently Egypt has been given first priority.
Soviet Ambassador Solod_in Cairo first indicated in late May
that Moscow would supply Egypt with arms in exchange for cotton.
Reports receilIed in October and November suggest that the total
Egyptian arms purchases from the USSR, Czechoslovakia) and oland may
exceed $140 million. Repayment is to be in Egyptian goods spread
over a period of several years.
Although the purchase of Soviet Bloc arms and the use of Bloc
technicians will Obviously provide opportunities for short-term pene-
tration, Egypt's driving ambition to construct the TVA-like $1.3 billion
Sadd-el-Aali project (the Aswan High Dam complex) and the frustration
which Egypt feels that she has experienced in trying to Obtain Western
finance provide?the USSR an opportunity for even longer range ex-
ploitation.
Following the public announcement in October of the Soviet
offer to build the Aswan High Dam,
the USSR had suggested a 30-year loan for an unspecified
amount at 2-pertent interest payable in Egyptian cotton and rice.
The estimated cost of the dam is approximately $48o million. Equip-
ment worth $275 million would have to be imported. By providing equip-
ment and technical assistance, the USSR could create at Aswan an enor-
mous monument to Soviet industry in the Middle East.
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In addition to the arms deal and the offer to supply the equip-
ment for the Aswan High Dam, countries of the Soviet Bloc are known to
have signed contracts for capital construction projects worth an esti-
mated $3.35 million. If Egypt accepts the Soviet offer for the Aswan
High Dam, total Bloc credits to Egypt would exceed $415 million.
D. Additional Bloc Activity.
The COmmunists are making new offers for arms and capital con-
struction almost daily in other Free World countries. Syria is on the
verge of signing a contract for Soviet Bloc arms which may reach $10
million. Jordan, Yemen, and Saudi Arabia reportedly have sought or
have been offered Bloc arms.
The Sino-Soviet Bloc has used trade to encourage neutralist
sentiment in Egypt and Burma during the past year by contracting to
take a large part of their cotton and rice surpluses These mounting
surpluses had become a major economic problem in both countries.
Sino-Soviet Bloc trade with the Near and Middle East has in-
creased substantially this year -- for example, Soviet trade alone
grew 28 percent for the first 6 months of this year compared with a
like period last year. This growth occurred despite the continuing
contraction of Soviet trade with the Free World generally.
II. Size of Effort.
The estimated value of Communist credits to Free World countries
may well reach $400 million within the next 6 months.* TThis figure'in-
eludes known contracts for arms, firm deals for nonmilitary credits
and projects, and only firm Communist offers which seem most likely to
be accepted. It does not include additional reported credits about
which the outcome is in some doubt. Should Egypt accept the Soviet
offer of about $275 million worth of goods and services to help with
the Aswan High Dam project, the total of Communist credits granted for
arms and construction projects would then be about $700 million.
Besides arms deals, contracts have been signed and work is actually
under way on projects using Bloc credits, personnel, and equipment to
the amount of $43 million.
* See the Appendix, p. 8, below.
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APPENDIX
ESTIMATED VALUE OF COMMUNIST CREDITS TO FREE WORLD COUNTRTES
Million US $
India
Afghanistan
Known Signed Contracts Including Projects
Under Construction
Country
Czechoslovakia
Czechoslovakia
Czechoslovakia
Hungary
USSR
USSR
USSR
USSR
Czechoslovakia
Czechoslovakia
Project
Suspension bridge
Thermal plant
Cement plant
Wire plant
Value
1 a/
0.6W
2 a/
0.05
3.65
Estimated total India
POL storage tank
Storage tanks.
Silos, flour mill,
bakery
Roadbuilding,
streetpaving
Cement plant
Balance of credit
Known Offers Which Seem Likely
to Be Accepted
Country
USSR
USSR
USSR
o.6 USSR
0.6 a
3.5
2.1
1.5
3.5
11.8
Arms deal
106.65
3
Estimated total Afghanistan 15.5
Project
Value
Diamond mining equipment 6 a/
Coal washing plant 2 a/
Steel mill 95
POL pipeline
103
0.7a/
0.7
Ar,
a. Estimated.
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Million US $
Iran
Syria
Known Signed Contracts Including Projects Known Offers Which Seem Likely
to Be Accepted-
Under Construction
Country ,Project Value Country Project Value
Czechoslovakia Shoe factory 0.1 a/
Hungary Bridge 3 ;,/
East Germany Transformer dis-
tribution
station .0.25 a/
3-35
Arms deal 140 a/
USSR offer--Aswan High Dam b/ 275 a/
Estimated total Egypt 418.35
Czechoslovakia Sugar factory 3 2/
Estimated total Iran
Czechoslovakia
East Germany
Sugar refining
plant
Cement plant
3
1.3
4.3
Poland
Bulgaria
Arms offer from Czechoslovakia 10 a/
_
Estimated total Syria 80.22
Railroad
Hydroelectric turbines
and generators
Power plant
65
0.25 ain
0.67 a/
65.92
a. Estimated.
b. Offer may be accepted only if Western financing fails to materialize.
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Million US $
Known Signed Contracts Including Projects
Under Construction
Country
Indonesia
East Germany
Czechoslovakia
Czechoslovakia
Turkey
Project
Sugar refining
plant
Radio factory
Pharmaceutical
plant
Value
13
0.6 a/
3W
16.6
Estimated total Indonesia 22.6
Known Offers Which Seem Likely
to Be Accepted
Country
Rumania
Hungary
USSR
USSR
USSR
Czechoslovakia
East Germany
East Germany
Hungary
Estimated total Turkey 7.556
Project
Cement plant
Electric power plants
Value
Wheat mill
3.5 ai
Macaroni factory
0.02 a/
Brick factory
1.6
Thread factory
1.2
Electrical materials
plant
0.136 ,
Spinning mill equipment
0.95
Power plant
0.15 a/
7.556
a. Estimated.
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Million US $
Known Signed Contracts Including Projects Known Offers Which Seem Likely
Under Construction
Country Project
Lebanon
Sudan
Saudi Arabia
to Be Accepted
Value Country Projeq Value
East Germany Cement plant
Czechoslovakia Porcelain factory,
crystal factory,
glass factory
Hungary Cement plant
Estimated total Lebanon
East Germany Qement Plant
East Germany $3,1,gar factory
Estimated total Sudan 3.15
East Germany Cement plant
Estimated total Saudi-Arabia
1
3
Estimated.
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