SPECIAL REPORT SOVIET FOREIGN AID

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A005400110002-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 11
• Document Creation Date: December 19, 2016
• Sequence Number: 2
• Content Type: REPORT

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7. October 1066
(SCI No, 0310/68A
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SOVIET PORTION JD
DIRECT ?RATE' OF INTELLIGENCE
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SOVIET FOREIGN AID
Soviet aid is dispensed abroad to support other
Communist countries, to bolster the Soviet presence
in the uncommitted world, and to exploit anti-West-
ern nationalism. The USSR's status as a great power
compels it to contribute to the demands for external
assistance both within and outside the Communist
world. Moscow, however, has modified its early ex-
pectations that foreign aid would ensure the recipi-
ents' allegiance to the USSR. In free world under-
developed countries, Soviet aid has lost much of its
mystique and has proved to be no panacea for eco-
nomic ills--but it is still sought for what help it
can provide. In these areas, the USSR is largely
motivated by a desire to dilute the Western presence.
The USSR is tailoring its program to participate in,
but to avoid assuming complete responsibility for, a
country's development, as occurred in Cuba.
Over half of Russia's exports to underdeveloped
countries represent deliveries of machinery and
equipment, a large part of which is on credit.' Re-
payments of credits extended to East European coun-
tries will provide the USSR with imported plant and
equipment it needs to fulfill its current five-year
plan. This self-supporting feature of foreign aid
reduces considerably the internal impact of current
aid deliveries.
The Current Program
With its attention focused
on Vietnam and on its own economic
problems, the USSR has taken few
new initiatives on foreign aid
during recent months. North Viet-
nam has required growing assist-
ance, but economic assistance pro-
grams for Bulgaria, Cuba, and
Yugoslavia are being implemented
on schedule. Although most new
aid extended to underdeveloped
countries represents long-standing
commitments, Soviet flexibility
has permitted it to exploit chang-
ing political situations. Since
the reaffirmation by the Kosygin-
Brezhnev regime of basic Soviet
aid, which had been marked by a
lull during the 1962 review of
the foreign aid program, the USSR
has engaged in aid extensions
averaging nearly $2 billion a
year.
The USSR has become increas-
ingly selective on the conditions
of aid offered to the underdevel-
oped countries. Soviet perform-
ance at UNCTAD makes it clear
that the USSR frequently feels a
kinship with major Western donors
on the economics if not the poli-
tics of foreign aid, and is care-
ful not to associate itself too
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SOVIET ECONOMIC AID EXTENDED 1954-66*
(in US dollars)
More than 501 million
101-500 million
26-100 million
a ' 25 million or less
'Preliminary; through September 7966 only
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closely with the underdeveloped
countries' claims for special
privileges.
Egypt, which has not always
been a passive client, stands out
as a major Soviet success. The
Western role there has been lim-
ited and while Cairo faces seri-
ous economic problems with which
the USSR must be concerned, the
problems are those of growth,
not stagnation. Soviet aid has
established and maintains Egypt
as a military power, and contrib-
utes to economic growth as well.
The Aswan Dam, the most notable
Soviet aid project to date, will
make a major contribution to
Egypt's economic future and is
expected to be completed in 1968,
ahead of schedule.
Its prominence as a supplier
of assistance causes Moscow some
apprehension, however. Unwise
Egyptian economic policies, moti-
vated by domestic political con-
siderations, have required Moscow
to revise its carefully worked
out program. Moscow, like the
West, presumably is seriously
concerned about the unfavorable
economic implications of the Sep-
tember change in economic leader-
ship in Egypt
JFurther-
more, Cairo's strained relations
with the US constantly threaten
the USSR with the prospect of be-
ing asked to assume the burden of
significant grain deliveries.
During the past year, the
USSR has found opportunities to
achieve new successes in the Mid-
dle East. The history of stormy
relations with Syria probably is
not at an end, but a new economic
--and possibly a new military--
aid agreement has been concluded,
thus augmenting the Soviet pres-
ence. Economic aid for the con-
struction of a major dam on the
Euphrates River may lead to sig-
nificant Soviet participation in
development of the Euphrates
River water system. An arrange-
ment similar to that with Syria
has been concluded with Iran,
and together these may lead fi-
nally to an agreement by these
two and Turkey on the division
of water resources.
After great persistence,
the USSR has achieved minor com-
mercial contracts for economic
development projects in Jordan
and is submitting offers on pro-
grams put up for bids. An ex-
pansion of economic contact with
Turkey also is under way. These
contacts are growing slowly, how-
ever; over a year now has been
spent discussing them.
Quickening Iranian interest
in expanding its relations with
Communist countries led to an
important agreement on the future
construction of a steel plant by
the USSR. Repayment terms, call-
ing for natural gas deliveries
to Russia for a number of years,
will lead to further growth in
economic relations. Both Iran
and Russia are proceeding cau-
tiously, however, as was evident
in negotiations on Iran's first
move to acquire Soviet military
equipment. The USSR maintained
a reserved position and gave no
sign that it saw the Iranian
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Soviet Foreign Economic Aid
1954.1966 (million US $)
'?Ju ;O FREE WORLD 6000
1960 1961 1962 1963 1964 196' 1966'
Soviet Foreign Military Aid to Non-Communist Countries*
1956 1957 1958 1959 1=960 1961 1942 1963
M INSUFFICIENT DATA AVAILABLE 7O INCLUDE MILITARY
AID TO COMMUNIST COUNTRIES
vi~Forei n ,tWE);
{mflhjon US $
pp
w om x ' I mi .00
30
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feelers as an opportunity for a
quick foreign-policy coup. Mos-
cow did not want to offer mili-
tary aid to Iran if the offer was
to be used primarily for leverage
to get more military aid from the
US.
Waning Western influence in
the Middle East cannot be ascribed
to Soviet foreign aid, but the
availability of Russian economic
support and military assistance
has provided leverage and widened
the area of action of local gov-
ernments.
In the early 1960s, the
USSR made a drive to exploit the
anti-Westernism of newly inde-
pendent African states, but they
have not succumbed to the Soviet
effort. The USSR's refusal to
provide cash to meet local costs
of development has complicated
its negotiations in Africa. Mos-
cow is reviewing its aid, how-
ever, in order to improve the
content of the programs and to
find ways of raising domestic
funds for development projects.
A notable feature of Moscow's
recent aid activity in Africa
has been the effort to disasso-
ciate it completely from Chinese
operations. Although there have
never been any joint Sino-Soviet
aid ventures, the similarity of
their ultimate goals originally
masked China's stress on violent
change as a condition for economic
improvement.
In East Africa, Kenya has
canceled some and suspended other
Soviet projects as inadequate,
while the USSR, fearing further
discredit to its foreign aid,
maintained stringent criteria in
its offers to Tanzania. Tanzania,
after more than a year of delib-
eration and attempts to find less
realistic donors, has finally
accepted some Soviet aid.
In Somalia, Moscow's image
has suffered from an ill-founded
and poorly administered program
that was designed some years ago
and was intended more for imme-
diate impact than for lasting
effect. It achieved little, how-
ever, and showed such poor pros-
pects that the USSR cut it back
this year. The part that remains
will cost more than the Soviets
originally estimated. The USSR
is trying to salvage some influ-
ence from its efforts and a
Somali delegation has just re-
turned from Moscow where addi-
tional aid has been promised.
Local political unrest has
hampered Soviet programs in West
Africa. The overthrow of Nkru-
mah brought Soviet projects in
Ghana to a standstill, while
radical African leaders in Congo
(Brazzaville) have demanded the
expulsion of Soviet military per-
sonnel. The USSR has long had
its program in Mali under review.
It has increased military aid,
but is reluctant to meet Malian
economic demands which it re-
gards as unsound and as setting
undesirable precedents.
Moscow, having apparently
chalked its setbacks up to ex-
perience, still seeks to move in
and erode Western influence where
it can. Lately, it has been
working on an aid proposal for
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Morocco which may be unveiled dur-
ing King Hassan's visit to Russia
next month. Earlier attempts to
establish relations with Morocco
were not successful.
Soviet willingness to ride
out a change in political tides
is evident in its relations with
Algeria. Dismayed at the over-
throw of Ben Bella, one of its
most ardent supporters, the USSR
nevertheless has maintained mili-
tary and economic agreements
with the new government. A large
influx of Soviet arms this year
has made Algeria's armed forces
the best equipped in Africa ex-
cept for Egypt and the Republic
of South Africa. Economic as-
sistance has moved more slowly,
but the USSR has gone ahead with
implementing the agreements.
The USSR has promised India,
seeking commitments for its forth-
coming five-year plan, sizable
new aid, although about 40 per-
cent of the billion dollars to
be provided will come from funds
made available earlier but as
yet unspent. Soviet assistance
to India, for the most part, has
been allocated for industrial in-
stallations in the public sector,
but recently Moscow agreed to ex-
tend medium-term credits to sup-
port increased import require-
ments that had been generated by
the development projects. The
USSR also is supplying equipment
and machinery for military plants.
India eventually will produce MIG-
21 jet fighters under license and
will obtain the equipment to pro-
duce missiles for these planes.
New Delhi now ranks as the
third largest recipient of So-
viet military materiel. Over
$600 million worth of arms and
equipment ison order. This pro-
giam has moved rapidly during the
past year ortwo, and Soviet
equipment--originally limited
to air transport and air defense
equipment--ndw pervades the en-
tire military establishment. The
ground forces receive large
amounts of armor, and several
naval craft including submarines
are on order for the navy.
In Pakistan, Soviet concern
with Chinese inroads and the op-
portunities offered by friction
between Rawalpindi and the West
has led to stepped-up economic
activity by Russia. By offering
additional aid for the current
five-year plan, Moscow has tried
to encourage; Pakistan to follow
a course more independent of both
the West and China. The USSR is
sensitive to!the reverberations
that would result in India from
military deliveries to Pakistan.
In Indonesia the Soviet Union
faces another test of its forbear-
ance. An active military aid pro-
gram and a marginal economic aid
program were under way at the time
of the anti-Communist coup last
year. Since then, both programs
have come to:a virtual stop. The
USSR, along With Western credi-
tors, is expected to agree to pay-
ments relief for Indonesia, but
Moscow may ir1'sist that Djakarta
follow a more pragmatic approach
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to economic development. It is
expected that Moscow will agree
to continue supplying adequate
equipment and spare parts to
maintain Indonesia's military es-
tablishment. The USSR has in-
vested over $1 billion in arms
aid and presumably wants to main-
tain the relationship this has
fostered with Indonesia, despite
Djakarta's crackdown on its Com-
munists.
The USSR also has permitted
Cambodia to reverse gracefully
the hostile attitude it developed
over a diplomatic slight to Si-
hanouk. The renewal of contact
earlier this year was followed up
by a small military pact under
which the USSR has provided a few
aircraft and some miscellaneous
equipment.
Latin America
Soviet interest in shoring
up its economic position in Latin
America has revived, but there is
little prospect that the drive of
the early 1960s--which resulted
only in artificial trade gains--
will be renewed. Moscow, instead,
is trying to promote more meaning-
ful relations.
Following a years' joint
study the USSR and Brazil an-
nounced in August an agreement
that will result in a moderate
expansion of trade, and may lay
the groundwork for a more endur-
ing economic relationship. In
late 1965, Brazil had rejected
Soviet offers of project aid as un-
suitable.
Under the
new agreement, the USSR extends a
$100-million credit to finance
short-term imports of machinery
and equipment purchases. The USSR
also agrees to accept one fourth
of the repayment in Brazilian-man-
ufactured goods, an export market
that Brazil has sought to enter and
develop.
Elsewhere in Latin America,
the USSR also has shown a procliv-
ity to relate its aid program to
trade rather than to development
projects where Soviet restrictions
and Latin American domestic poli-
cies have previously resulted in
failures. Most Latin American
states, still apprehensive about
the political motives of the USSR,
apparently feel more confident if
relations are limited largely to
commercial exchanges. Uruguay and
Chile are considering accepting
some Soviet aid that will be drawn
down through imports of Soviet in-
dustrial goods, but will not be
related to specific development
projects requiring Soviet supervi-
sion and large number of foreign
technicians. The agreement with
Chile is likely to amount to $50-
75 million; discussions with Uru-
guay have been limited to about
$20 million.
Communist World
Aid to Communist countries
swells total Russian outlays
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considerably. The USSR has ex-
tended new aid this year to North
Vietnam, Cuba, Yugoslavia, and ap-
parently North Korea. It is also
delivering, under credit programs,
substantial quantities of indus-
trial equipment to Bulgaria and
Mongolia.
Cuba continues to require
major support. In'addition to
the balance of payments assistance
announced early this year, more
aid is being made available.
Cuba's failure to meet its sugar
output goal this year has resulted
in sharply slashed deliveries to
the USSR--shipments designed tq
meet Cuba's obligations to Moscow.
Military assistance continues, but
appears to be rather small with no
major new agreements concluded re-
cently, although Cuban military
delegations have visited the USSR
during the year.
The substantial aid offered
to Yugoslavia attests to the USSR's
desire to maintain and increase its
economic contacts despite some dis-
parity of political views. The
economic aid extended after several
months' negotiation augments Soviet
assistance to the Yugoslav military
establishment during recent years,
some of which apparently is on a
credit basis.
Moscow alto appears to have
made new aid commitments to North
Korea as part of its effort to im-
prove ties with that country and
to capitalize bn cooling Sino-Ko-
rean relations.
While there is no evidence
that the estimated $250 million
worth of economic and military aid
to North Vietnam last year imposed
a severe drain on the Soviet econ-
omy, much of t:he aid delivered has
come from the transport and con-
struction equipment sectors where
demand already was high. Shipments
of military equipment probably come
from existing stockpiles. Soviet
aid deliveries to Vietnam are in-
creasingly being placed on a grant
basis, and much of the new assist-
ance promised to Hanoi by Moscow
this week will he in the form of
a qift.F 7
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