LDC APPLICATIONS FOR CEMA MEMBERSHIP: WHY THE REJECTIONS?

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T01058R000507940001-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 37
• Document Creation Date: December 22, 2016
• Document Release Date: January 21, 2010
• Sequence Number: 1
• Publication Date: September 18, 1985
• Content Type: MEMO

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DQC N'0-
OCRs s.....Z.
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State Dept. review
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DDI/SOVA/TWA/PP (18 Sep 85)
SUBJECT: LDC Applications for CEMA Membership:
Why the Rejections
Internal Distribution
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SUBJECT: LDC Applications for CEMA Membership:
Why the Rejections?
External Distribution
State Department:
42 - Thomas R. Maertens, Economic Officer, EUR/SOV
Office of Soviet Union Affairs
Bureau of European and Canadian Affairs
Room 4223
43 - Alexander Vershbow EUR/SOV
Office of Soviet Union Affairs
Bureau of European and Canadian Affairs
Room 4225
44 - Byron Morton, EUR/SOV
Office of Soviet Union Affairs
Bureau of European and Canadian Affairs
Room 4217
45 - Bruce Hirshorn, Chief EB/TDC/OT/ODC
Developing Countries and Trade
Organization Division
Office of International Trade
Bureau of Economic and Business Affairs
Room 3829
46 - Richard Herold, Economist, AF/EPS
Economic Policy Staff
Bureau of African Affairs
Room 5242A
47 - Desiree Millikin, NEA/PAB
Afghanistan Country Officer
Room 5247
48 - C. J. Hall, AF/S
Angola Country Officer
Room 4238
49 - William Warren, EUR/EE
Bulgaria Country Officer
Room 5219
50 - Terry Breese, EAP/VLK
Cambodia and Laos Country Officer
Room 6808
51 - John Madderno, Economic Officer
ARA/CCA/Cuban Affairs
Room 3250
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SUBJECT: LDC Applications for CEMA Membership:
Why the Rejections?
State (Continued)
52 - Mary Peters, Economic Officer, EUR/EEY
Country Officer for Czechoslovakia,
Hungary and Poland
Room 5221
53 - Randal Le Cocq, AF/E
Ethiopia Country Officer
Room 5240
54 - David Shears, EAP/C
Mongolia Country Officer
Room 4318
55 - James Libera, AF/S
Mozambique Country Officer
Room 4238
56 - Stephen G. McFarland, ARA/CEN
Nicaragua Country Officer
Room 4915
57 - Stephen T. Johnson, EAP/VLK
Vietnam Country Officer
Room 6808
58 - Andrew Steinfeld, NEA/ARP
South Yemen Country Officer
Room 4224
59 - Sarge Cheever, INR/SEE
Soviet Foreign Policy Division
Room 4843
60 - Mike Spangler, INR/EC/CER
Communist Economic Relation Division
Room 8666
61 - John Danylyk, Chief INR/EC/CER
Communist Economic Relations Division
Room 8662
62 - William J. Newcomb
INR/EC, Communist Asia
Room 8722
63 - Paul Trottier, INR/NESA
Office of Research and Analysis for
Near East and South Asia
Room 4636
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SUBJECT: LDC Applications for CEMA Membership:
Why the Rejections
State (Continued)
64 - Edward Booth, INR/SEE
Office of Analysis for the Soviet
Union and Eastern Europe
Room 4751
65 - Frank Foldvary, INR/SEE
Office of Analysis for the Soviet
Union and Eastern Europe
Room 4743
66 - Michele Bova,
INR/EC Latin America
Room 8662
67 - Dennis P. Murphy, Chief,
Regional Economic Division
INR/EC/EE
Room 8662
Defense Department:
68 - Col James Coniglio
Country Director for Nicaragua
ISA/Office of Inter-American Affairs
Room 4C800, The Pentagon
69 - CDR. Gary W. GottschalK
Country Director for Cuba
ISA/Office of Inter-American Affairs
Room 4C800, The Pentagon
70 - Robert P. Zwart
Country Director for Afghanistan
ISA/Office of Near Eastern and
South Asian Affairs
Room 4D765, The Pentagon
71 - Col. Ronald P. Hoffmann
Country Director for South Yemen
ISA/Office of Near Eastern and
South Asian Affairs
Room 4D765, The Pentagon
72 - William A. George
Economic Policy
ISP/Office of International Economics,
Trade, and Security Policy
IDA Building
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SUBJECT: LDC Applications for CEMA Membership:
Why the Rejections?
Commerce Department
82-85 - Carol Minor
Office of Intelligence Liaison
Room 3520, Main Commerce Building
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Central Intdl"AF y
18 September 1985
MEMORANDUM FOR: (See Distribution List)
Chief, Third World Activities Division
Office of Soviet Analysis
SUBJECT LDC Applications for CEMA Membership:
Why the Rejections?
1. The attached memorandum analyzes various factors in the
USSR's decision to reject LDC ap lications to the Council for
Mutual Economic Assistance (CEMA). In recent months, Ethiopia's
application has highlighted this subject. The rejections of the
seven LDCs that have applied since 1980 are one sign of the
USSR's desire to limit the cost of involvement in the Third
World; the memorandum also discusses these more general
2. We are addressing this to s rimaril in the hope of
stimulating thought. The author, i would be pleased 25X1
to exchange additional information or provide a formal
briefing. Your comments may be addressed to the Chief, Third
World Activities Division, Office of Soviet Analysis,
Attachment:
SOV M 85-10169, 18 Sep 85
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 Central IntdlWnce Agency
WuhIVon.QC20505
DIRECTORATE OF INTELLIGENCE
18 September 1985
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LDC Applications For CEMA
Membership: Why The Rejections?
25X1
Summary
Since 1980, seven less developed countries (LDCs)--
Afghanistan, Angola, Ethiopia, Guyana, Mozambique, Nicaragua, and
South Yemen--have applied for membership in the Soviet Bloc's
Council for Mutual Economic Assistance (CEMA) and been
rejected. Although the USSR would seem to have a strong
incentive to include more LDCs as members--if only to demonstrate
to the Third World the Bloc's growing strength--it has not done
so mainly because it fears that such countries would have a
stronger claim to Soviet economic aid and because of active
lobbying by the East European members. Several other factors may
The Kremlin probably will continue to reject future
applications in large part because its long-term strategy in the
Third World might be set back if LDCs impulsively socialize their
economies or more clearly signal their close ties with the Soviet
Bloc by formally joining CEMA. Although the Soviets are risking
seeing these regimes turn to the West for aid, the West may have
have played a part in the rejections.
Information available as of 15 September 1985 has been used in
its preparation. Questions and comments are welcome and may be
addressed to the Chief, Third World Activities, 25X1
World Activities Division, Office of Soviet nays s
This memorandum was prepared by I the Third
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economic policies.
difficulty capitalizing on Third World disaffection with Soviet
Discussion
Several possible considerations may have contributed to
these rejections:
Costs. The countries' tremendous capital needs convinced
the Soviets that CEMA membership would lead to demands
for additional large expenditures to support their
economies, and economic stringencies in the USSR would
make such a burden unacceptable.
-- East European opposition. East European leaders, who
have their own economic troubles, lobbied the USSR to
keep CEMA membership at its present size.
Fear of capital flight. Moscow believed that if indigent
clients joined GEMA, western sources of capital
would dry up and domestic entrepreneurs would flee,
undermining the countries' economies.
Stabilit of the regimes. The USSR rejected applications
from regimes it considered to be unstable because it did
not want to invest in countries that might later stray
from their socialist or pro-Soviet orientation.
Strategic considerations. Admission to CEMA could imply
to successful app icants a public guarantee of military
applied in 1982, and the other four countries in 198 .
reportedly made several attempts, beginning in 1980; Angola
4
The Soviets' ability to build influence in the Third World
depends partly on the effectiveness of their economic policies
there. Offers of military aid help them make inroads in the
Third World, but their prestige among less developed countries
(LDCs) probably suffers to the extent they cannot demonstrate
that their commercial and economic aid policies also offer
concrete benefits. One sign of the Soviets' difficulties in this
area has been their recent unwillingness to admit any more LDCs
into the Soviet Bloc's Council for Mutual Economic Assistance
(CEMA). The only non-European states that have been allowed into
CEMA have been Mongolia (1962), Cuba (1972), and Vietnam (1978)
(see Appendix 1). 25X1
Since 1980, seven LDCs--already allied with the USSR--have
unsuccessfully applied for admission into CEMA. A variety of
open-source reporting shows that Afghanistan,
Angola, Ethiopia, Guyana, Mozambique, Nicaragua, and South Yemen
have tried and failed. Mozambique applied in 1980; Ethiopia
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and political support, and Moscow judged that none of
them were of sufficient strategic importance to justify
it.
-- Unsuitable economies. The Kremlin doubted that the
applying countries had instituted the degree of central
planning needed to integrate their economies with those
of the more developed CEMA countries.
-- Soviet control. The USSR may believe that new members
cou form voting blocs within CEMA to oppose its
policies.
Why the Rejections: Testing the Hypotheses
The Costs
The tremendous capital needs of those countries that have
applied for CEMA membership are self-evident; they are among the
poorest in the world. In 1984 the GNP per capita in Afghanistan,
Ethiopia, and Mozambique ranged roughly from $120 to $165, and
literacy rates from 12 to 15 percent. The average GNP per capita
in 1984 for all seven countries denied CEMA membership was around
membership.
25X1
Reporting from State Department and other sources suggests
that the applicant countries were hoping membership would bring
them more economic assistance from the socialist Bloc--being
doubtless aware that each of CEMA's current LDC members (Cuba,
Vietnam, and Mongolia) receives far more Communist aid than any
other Third World country. On the other hand, most nonsocialist
LDCs probably harbor few illusions about the economic rewards of
membership. In the early 1960s, the Soviets often mentioned the
doctrine of "leveling up"--raising the economies of the poorer
socialist states to the level of the more advanced ones--but
their pronouncements have hardened considerably since then (see
Appendix 2) This doctrine may nevertheless have played a part in
leading some client states to hope for concrete payoffs from CEMA
$440.*
*In contrast, the USSR's GNP per capita in 1984 was $7,120;
in Eastern Europe, the GNP per capita ranged from $5,200
(Romania) to $9,800 (East Germany). These figures roughly
illustrate the large contrast in economic development between
CEMA's actual and would-be members, but they are calculated by
different methodologies. The applicants' GNP is calculated from
foreign exchange rates, and the Communist countries' is based on
Purchasing power parities.
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At the CEMA ministerial meeting in Havana in October 1984,
some of CEMA's six observers--Afghanistan, Angola, Ethiopia,
Laos, North Korea, and South Yemen--reportedly tried to increase
their aid receipts from the Bloc, and some tried to become
members. When Ethiopia sent a delegation to the CEMA meeting in
Warsaw in June 1985, its
leaders expected a large volume of Soviet economic aid.
According to the US Embassy, a senior Ethiopian official told an
East European diplomat that Addis Ababa would get out of CEMA
During the CEMA summit in June 1984, President Daniel Ortega
may have tried to persuade the USSR to admit Nicaragua and
include it in the final communique as one of the less developed
states (along with Cuba, Mongolia, and Vietnam) whose economic
development the European members pledged to try to accelerate.
exactly what you (the European members) put into it."
Around the same time, Bayardo Arce, a high-level Sandinista
that the USSR had twice refused Nicaragua's request to join; Arce
believed these rejections increased the Ortega regime's concern
for the country's economic viability. A CEMA delegation
eventually went to Managua to analyze the nation's economic
official, reportedly complained
problems and, CEMA members then
began to consider a multilateral aid program for Nicaragua.*
Guyana reportedly also applied to CEMA in the hope of
obtaining more aid. the 25X1
Guyanese asked the Cubans to support their application and the
Cubans warned them that their large aid re uirements would make a
positive response unlikely. 25X1
Aid transfers to LDCs in individual cases probably would not
cause the USSR serious economic concern in the short term, but
the current competition for resources at the margin allows very
little leeway for Soviet planners to divert much financial aid to
September 1984, reviewed economic cooperation and trade.
Nicaragua is planning to phase out
*According to Embassy reporting, the inaugural meeting of
the CEMA-Nicaraguan Mixed Commission, held in Bulgaria in 25X1
its bilateral agreements with socialist countries and will begin
conducting its economic relations with them through CEMA. We
believe, however, that the economic impediments that already
prevent multilateral trade on a significant scale among socialist
countries and lead them to prefer bilaterally balanced trade will
impede movement in this direction. The dispatch of a CEMA
delegation to Managua probably was an effort by the USSR and its
European allies to soothe the Nicaraguans after the rejection of
their multiple requests for membership.
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Reinforcing Moscow's concern about admitting new LDCs to
CEMA membership are the recent large increases in Soviet aid
deliveries to the present LDC members. In 1982 these three
states together received $7.3 billion in Soviet assistance; this
marked a large shift toward the non-European members in the
USSR's burden of support for CEMA. In 1980, Eastern Europe
received almost 70 percent of Moscow's total aid to CEMA members
($12.5 billion out of $18.2 billion), but four years later itsSee
share was only 27 percent ($2.4 billion of $8.8 billion).**
25X1
funds among the principal domestic claimants--the cones
new CEMA members. A decision to give Ethiopia (the poorest
applicant) the same volume of aid that Cuba (the largest Soviet
aid recipient) received in 1984* would involve only 0.2 percent
of the USSR's roughly $2-trillion GNP. The strain on the Soviet
economy could begin to mount, however, if the admission of one
country created irresistible pressure to admit many others. The
marked slowdown in Soviet economic growth has increased the
importance of relatively small reallocations of resources from
one sector of the Soviet economy to another. The diversion of
billions of dollars' worth of resources to new CEMA members would
greatly complicate the planners' already difficult juggling of
25X1
Indeed, the burden of supporting the three non-European
members may very well rise. During the June 1984 summit in
Moscow, the more developed members of CEMA promised in their
figure.)
the-t4.6 billion that we estimate Cuba received in
1984, more than three-fourths consisted of trade subsidies for
Cuban sales of sugar and nickel to the USSR and purchases of
petroleum from the USSR. Most of the remainder is trade and
development aid that we have calculated from (a) estimated
balance-of-payments aid necessary to cover Cuban soft currency
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.
Appendix 5 provides additional details on our calculation of
Soviet and East European economic aid to client states and other
**Our estimate for Soviet aid to Eastern Europe is based on
the sum of the USSR's oil subsidies and trade surpluses with
these countries. The estimate of Soviet aid to Cuba is discussed
in the previous footnote. Our calculation of the USSR's aid to
Vietnam and Mongolia is based on the value of its trade and
development aid (estimated from reported Soviet trade surpluses)
and oil subsidies. For Vietnam, we also include our estimate for
the value of Soviet grants (based on the proportion of grants in
reported commitments) and technical services.
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Non-European
European
1978 1979 1980 1981 1982 1983
Note: The European members are Bulgaria, Czechoslovakia, East Germany, Hungary, Poland and Romania.
The estimates for these countries include oil subsidies and trade surpluses. The estimates for the
non-European members--Cuba, Vietnam, and Mongolia--include trade and development aid, technical
services, oil subsidies, and other hard currency support.
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"economic declaration" to comply with their "international
obligation" to speed up economic growth in Vietnam, Cuba, and
Mongolia and to move toward raising the economies in these
countries to the level of the European members. The Soviets
almost certainly recognize that, while the East Europeans may
make some contribution, the USSR will continue to shoulder most
of the burden. We estimate that the USSR supplied roughly $7
billion to CEMA's less developed members and observers in 1983.
while Eastern Europe supplied only around $300 million.
Complaints by the present less developed members probably
reinforce Moscow's reluctance to admit other LDCs to CEMA.
-- Cuba. Several irritants probably contributed to Castro's
decision not to go to Moscow for the June 1984 CEMA
summit. Perhaps most important, however, was Cuban
resentment over the present structure of Bloc aid, which
emphasizes Havana's role as a supplier to CEMA of raw
materials (particularly sugar, nickel, and citrus fruit)
rather than increased production of industrial goods.
In a June 1984 interview, Vice President Rodriguez
complained that Cuba still did not produce enough
computer components and other electronic equipment. He
stated that Cuba, Vietnam, and Mongolia would like to
increase industrialization not only in the processing of
raw materials but also in the mechanical and electronic
sectors. That fall, in an article in the Cuban daily
Granma, Castro suggested his irritation that some of the
East Europeans had not been prompt or generous in their
aid commitments: "Insofar as Cuba is concerned, we . .
declare ourselves satisfied with the progress made in
coordinating plans for the period 1986-1990, although
some countries are a bit delayed. . ."
-- Vietnam. At the CEMA ministerial meeting in October
1984, to the US Embassy in Havana, the
Vietnamese representative for the first time complained--
tactfully--about the discrepancy between Cuba and Vietnam
in level of aid. Around the time of the June 1985 CEMA
meeting in Warsaw, the Vietnamese deputy premier said
that his government could not meet its debt payments to
CEMA and asked for a rescheduling agreement, new
financial credits, and preferential trade arrangements
for Vietnam within CEMA. A Soviet economist working on
CEMA affairs told the US Embassy in Moscow that Vietnam
would be a more "difficult case" than Mongolia or Cuba
because its per capita income was much smaller than those
of the other two.
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Mongolia also may be exerting pressure for more Soviet aid. A
Soviet economist, commenting on the June 1984 CEMA declaration
that promised to accelerate economic development in Cuba,
Mongolia, and Vietnam, told a US Embassy official: "The
Mongolians used to ask us to help draft their speeches. but . .
they have learned how to squeeze us hard."
Private statements by Soviet officials and articles in
specialized journals suggest that Moscow considers the size of
its economic assistance to the current LDC members to be a
deterrent to admitting any more members to CEMA:
-- During a conference in July 1984, a Soviet Africanist
explained the rejection of Mozambique in late 1980 to
American scholars, saying: "We already have two poor
countries in Cuba and Vietnam, and we don't need any
more."
-- Some Soviet specialists on the Third World have hinted
that today's radical states cannot expect to receive as
much financial support as the early followers of the
"noncapitalist path" (like Mongolia), and they have
implied that distance from Moscow would influence the
level of Soviet economic aid.
East European Opposition
At first glance, it is difficult to see why the East
Europeans should fear the entry of more LDCs into CEMA. Given
CEMA's general disinterest in Third World issues and the
bilateral rather than multilateral emphasis of its aid to the
Third World, enlarging CEMA would hardly seem to threaten further
strain on Soviet or East European financial resources (see
Appendix 3). Furthermore, the level of bilateral aid that the
East Europeans are giving to the present LDC members is so modest
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that it would seem to undercut any argument they might make to
The East Europeans could hardly fear that enlargement would
shift the burden from the USSR to them; according to our
calculations, the burden of aid to CEMA's LDC members and
observers during 1979-84 weighed around 40 times as heavily on
the USSR as on Eastern Europe, as a share of GNP per capita (see
table on next page). In the case of Afghanistan, the USSR
extended over 90 percent of the Soviet Bloc's economic credits
and grants from 1980 to 1984.
25X1
Nonetheless, the East Europeans probably feel they have less
leeway than the Soviets in providing even a modest level of aid
and that the cost is relatively greater for them than for Moscow.
Between 1980 and 1984, the Soviet economy grew on average by
about 2.5 percent per year, while the East European economies as
a whole grew by only 0.9 percent; their slow growth makes even
small shortfalls in the funds available for domestic investment
and consumption appear critical. These countries almost
certainly view the Marxist states in the Third World as a further
drain on their already overburdened resources. In fact, the East
Europeans have long claimed that they cannot expand their
economic support to LDCs. A Hungarian economist warned in 1976,
for example, that Budapest should take careful stock of "its own
economic ability" before embarking on aid projects that exceed
the "limits of its own capacity."
The East Europeans have several other reasons to fear the
entry of more LDCs into CEMA:
-- They probably fear that if a new member came in, Moscow
would accelerate the recent trend of reductions in Soviet
aid to them. They may believe that such an LDC would be
able to pry more aid from the Soviets, who would not want
to see a new member of the "socialist commonwealth" turn
to the West. The East Europeans may believe that they
are already indirectly carrying most of the burden of
aiding the LDC members, since most of CEMA's fuel and
mineral projects scheduled for 1986-90 will be located in
Cuba, Vietnam, Mongolia, and the USSR--despite Eastern
Europe's own urgent energy needs.
-- The probably believe Moscow would exert greater pressure
on them to come up with "fraternal assistance" to new
members. Even though CEMA does not appear to raise or
disburse its own funds on a multilateral basis to LDCs,
we believe the Soviets take advantage of the various CEMA
meetings to cajole or bargain with their European allies
to boost their bilateral aid to the non-European members
(helping Moscow reduce its own burden). In return, the
Soviets probably offer concessions on other CEMA
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ESTIMATED SOVIET AND EAST EUROPEAN
AID TO THE THIRD WORLD
(Annual averages, 1979-84)
Recipients
million US $
East
Soviet European
Aid a Aid b
CEMA's LDC Members (Cuba, 6,420
Vietnam, and Mongolia)
CEMA's LDC Observers (Afghanistan 940
Angola, Ethiopia, Laos, North
Korea, and South Yemen)
Nicaragua and Mozambique 70
Non-Communist LDCs d 1,470
TOTAL 8,900
Note: This figure is intended to suggest differences in the order of magnitude
between Soviet and East European economic aid rather than exact aid flows.
a. For Soviet aid to CEMA's three LDC members and to North Korea and Laos, the
average aid flows include, where applicable, our estimates of trade and
development aid, technical services, oil subsidies, and other hard currency
support.
b. East European flows to North Korea, Mongolia, and Cuba are estimated from
annual trade surpluses with these LDCs. These figures probably are slightly
understated because they do not include the trade surpluses of East Germany,
which does not disaggregate exports and imports in its published trade
statistics.
c. Five-year average based on 1979-83 data because 1984 data unavailable.
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issues. For example, a US Embassy source reports that
Bulgaria agreed, around the time of the June 1984 CEMA
summit, to give more support to the poorer members--
including setting up aid programs for Vietnam and Cuba--
in return for the Soviet assurances on energy supplies
and higher prices for Bulgarian agricultural exports to
the USSR (see Appendix 4).
-- They probably feel they should anticipate LDC
applications and oppose them early on, to avoid such
pressure from Moscow. Although the USSR may do little
when an LDC first gains admission, the East Euro
probably believe the pressure will come later. 25X1
Another reason why the East European regimes would resist large
new aid programs is that they have far fewer direct military,
political, or other noneconomic interests in meeting Third World
needs than the USSR has. 25X1
Given these motivations, it is not surprising that Eastern
Europe has lobbied strongly against LDC applicants. In 1978,
according to open-source documents, Czechoslovakia and Hungary
opposed Vietnam's admission to CEMA--unsuccessfully. In late
1980, when Mozambique tried to join, East European opposition
proved to be effective. At that time, President Machel told a
visiting CEMA delegation that he expected major development aid
commitments before taking such a step. The delegation's reaction
reportedly was mixed with the Soviets visibly pleased and the
others equivocal. Hungary,
Romania, and Poland opposed the application. The Hungarians 25X1
argued that CEMA had problems enough without Mozambique and that
membership would imply a large economic aid commitment. The USSR
eventually went along with the East Europeans and told Mozambique
it would not be admitted. 25X1
The only indication since 1980 that Moscow may have pushed
for the admission of an LDC came shortly before the June 1985
CEMA meeting in Warsaw, when some diplomatic sources thought the
Soviets favored Ethiopia's entry. We believe the initiative came
from Mengistu rather than from Moscow. The Soviets may not have
wanted to reject the application themselves and probably decided
to let the issue come to a head during the meeting, knowing they
could count on the East Europeans to squelch it instead. In any
event, many of the East Europeans clearly expressed their
opposition. A senior Czechoslovak diplomat told a US Embassy
official in Addis Ababa that Prague was opposed because the
Ethiopians could not repay the principal or interest that they
already owed nor provide goods to compensate Czechoslovakia for
its past investments in their country. An East German diplomat
told the US Embassy that Addis Ababa looked on CEMA membership as
a way of "getting something for nothing," noting that Ethiopia
could not contribute any economic benefit to CEMA.
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East European resources to Soviet clients in the Third World.
Although Soviet leaders probably reason that they can more
easily press the East Europeans to boost aid to Moscow's Third
World clients if these LDCs are admitted to CEMA, they also have
strong reasons to go along with the East European pleas for
rejection. Moscow knows that many of its European allies,
especially Romania and Poland, continue to face serious economic
problems. It also knows that economic privation could affect
political stability in some East European countries, jeopardizing
this prime area of Soviet strategic concern. Because the Soviets
have incurred economic and political debts through other
actions--such as cutting back oil supplies to Eastern Europe and
seeking a redirection of trade within the Bloc--they probably
consider it prudent to relent on demands that affect their own
economy only indirectly, such as requiring large transfers of
Fear of Capital Flight
The Soviets have made it clear that--broadly speaking--they
would prefer that an LDC develop its economy by building up its
public sector rather than by relying on private capital. They
frequently state that LDCs should develop economic links with
socialist countries to strengthen their state sectors, especially
heavy industry, rather than turning to the World Bank, regional
development banks, multinational corporations, or domestic
entrepreneurs. For example, the Soviet press has criticized
Egypt's late President Sadat for his "bankrupt" economic policy
of encouraging private capital inflows, on the grounds that it
discouraged "socially significant projects" and caused a more
inequitable concentration of wealth. In contrast, Moscow has
praised Egypt's recent plans to direct more capital to the state
sector. During the June 1984 CEMA summit, a Soviet journal
blamed the Third World financial crisis largely on weaknesses in
LDCs' state sectors and on their "great dependence on world
capitalist markets and on activities of multinational
companies." The article stated:
To give their cooperation with the developing states a more
stable and planned character, the socialist countries are
directing their efforts to strengthening the planning
principles of economic development. . . . First of all, the
socialist countries strive to strengthen in these countries
the socioeconomic basis of planning, which must be built on
the state sector. Virtually all the enterprises that are
built with the assistance of CEMA countries are built within
the state sector.
At the same time, the Soviets realize that the "construction
of socialism" in the Third World is a gradual and complicated
process; they have indicated that, if the process is to sustain
itself, LDCs must not move too rapidly while building the
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buy domestic peace and international financial aid.
recommended that radical leaders deemphasize collectivized
agriculture and forge alliances with moderate forces in order to
economic and social bases required for socialism. Since the
1960s, some Soviet academic specialists have been alluding to the
danger of provoking flights of domestic and international capital
from LDCs. They have been giving more attention to the internal
problems of developing countries, including socialist LDCs,
stating that low growth results from deep-seated social and
economic factors. These specialists acknowledge Moscow's
inability to reduce developing countries' extensive ties with the
capitalist market, and a minority have even made favorable
comments about multinational corporation-s (although they were
careful to couch their praise in Marxist terminology). They have
of official Western aid still available.
We have no direct evidence that Moscow has barred any LDC
from CEMA for fear of provoking a massive flight of domestic and
Western private capital from that country and thus creating even
greater requirements for Soviet financial support, but several
examples suggest that Moscow may have advised LDCs against
membership on those grounds. When Ethiopia tried to join in
early 1984, according to a US press account, the Soviets
cautioned Mengistu not to look to CEMA for the kind of economic
support given to Cuba but rather to court the West for aid and
investment. They also advised him to avoid doctrinaire Marxist
economic policies, both internal and external. The Soviets have
not given Mozambique enough economic aid to deter it from rapidly
expanding its economic ties with the West, and we believe they
probably advised the Nicaraguan regime that CEMA membership would
alienate Western commercial creditors and cut off those sources
The USSR has given similar advice to LDCs that have not
expressed interest in joining CEMA. In late 1982,
the USSR was disinclined to provide
large-scale economic aid because sudden inputs of Soviet aid in
the past had driven potential Western donors, the International
Monetary Fund, and the World Bank away from other recipients. A
Soviet diplomat explained that, in light of Western biases
against the leftist Mauritian Government, the USSR did not want
to give the West an excuse to abandon the country altogether.
relations with the Gulf states to deteriorate, since those
countries had been a dependable source of financial aid.
officials in October 1984 they should not have allowed their
Moscow told Syrian
Fear of Regime Instability.
Statements by Soviet area specialists and references in the
press indicate that the USSR has become more alert to possible
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instability in the Third World, particularly when it might
threaten set-backs to regimes proclaiming loyalty to Marxist-
Leninist ideology and Soviet foreign policy. Doubts about a
regime's staying power may have played a part in several of
Moscow's rejections. Painful experience--for example, expulsion
from Egypt in 1976 and from Somalia in 1977--probably intensified
the Soviets' reluctance to take on the major commitment of
granting CEMA membership before they are satisfied with the
regime's prospects for long-term survival.
In calculating these prospects, the Kremlin probably would
weigh the following factors:
-- The existence of a Soviet-style Communist Party.
-- Possible factionalism within that party.
-- The country's level of social and economic development.
-- The local party's ability to control spontaneous
expressions of opinion.
-- The "social allegiance" of the party's leaders (that is,
whether they come from a "proletarian" background or from
a less "reliable" social class--such as the petty
bourgeoisie or the Western-trained intelligentsia).
Soviet area specialists have distinguished among leftist LDC
regimes on the basis of these criteria. Moscow puts Cuba,
Vietnam, and Mongolia (CEMA's less developed members) in a
separate category--and provides them more economic aid than other
LDCs--because they generally support Soviet foreign policy, their
ruling parties are in virtually no danger of losing control, and
Moscow considers their socialist revolutions to be irreversible.
The observers in CEMA fall into a less preferred category. For
example, when Mozambique's application to join CEMA was rejected
in late 1980, a Soviet Foreign Ministry official reportedly said
that it could not qualify because it was not a true socialist
country.
Before Moscow decides to grant such a significant sign of
approval as CEMA membership, an LDC almost certainly must have a
functioning ruling party that Moscow acknowledges to be genuinely
Marxist-Leninist. We believe the Kremlin would require the party
of a country joining CEMA to function along the same lines as the
Communist Party of the Soviet Union, not as a mere "vanguard" or
"democratic revolutionary" party. This criterion alone probably
would destroy any hopes that Angola, Ethiopia, Mozambique, and
especially Guyana currently may harbor for joining the "socialist
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party.
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The Soviets arrogate to themselves the right to judge
whether a party qualifies or not. They have not even upgraded
South Yemen's party from "vanguard" to "Communist," although it
is a reliable mouthpiece for Soviet foreign policy and is no
immediate danger of losing control; they probably think that an
internal schism could unexpectedly overturn the party's present
leadership. As for the one self-proclaimed "Marxist-Leninist"
ruling party among all the countries that have applied to CEMA--
that of Ethiopia--the Soviets probably recognize that it is
essentially a vehicle allowing the military to continue its
dominant political role. Although they are pleased that Ethiopia
established a "Worker's Party" in September 1984, they probably
realize that it does not yet exert the desired level of control
over the country's political and social forces and that its
dependence on Mengistu and other Ethiopian leaders prevents
Moscow from exerting as much influence as it wants over the
Another manifestation of regime instability--insurgency--
probably also has played a part in the Kremlin's decision to
exclude several countries from CEMA. Except for Guyana and South
Yemen, every country that has applied faces insurgencies of
varying degrees of stren th. In Mozambique, RENAMO (National
Resistance of Mozambique}) is making large gains; in Angola, the
regime is unable to regain large parts of the country held by
UNITA (National Union for the Total Independence of Angola); and
in Ethiopia, Mengistu faces persistent rebellions in the
provinces of Eritrea and Tigray. In these cases, the
governments' inability to control all the territory they claim
probably adds to the Kremlin's concern about extending its
political and economic commitment. In the case of Nicaragua, the
drawbacks are the domestic insurgency and fears of a US invasion.
Strategic Considerations
The Soviets' perception of a country's geographic importance
to their security interests apparently has helped determine its
admission to CEMA. In 1949 the USSR organized CEMA, primarily to
forestall Czechoslovakia from accepting Marshall Plan assistance
for reconstructing its war-torn economy. Fearing that other
members of its newly acquired East European "empire" might also
be tempted by Western aid offers, the USSR ordered them to join
CEMA and prohibited them from joining the organization that later
became OECD. The non-European CEMA members are also important to
the USSR in its relations with its major adversaries. Vietnam
and Mongolia are importantly located as counterweights to China;
and Cuba--as well as being a thorn in the side of the United
States--helps Moscow gain leverage with other Latin American
countries and provides vital military services to Soviet clients
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But, even though strategic importance has helped define
eligibility for CEMA membership, it has not ensured acceptance.
If it were the sole determinant, the Soviets would have admitted
such client states as Nicaragua and Afghanistan. Nicaragua, like
Cuba, plays a role in undermining American influence in Central
America, and the strategic importance of Afghanistan (a
contiguous battlefield where almost 120,000 Soviet soldiers are
fighting for military control) is self-evident--but neither is a
member of CEMA. Geographic and strategic importance alone
clearly is not sufficient to ensure an applicant's admission to
CEMA, even though it probably is a necessary condition.
The USSR may have rejected applications from "socialist-
oriented" regimes in part to avoid giving even strategically
placed LDCs the impression that CEMA membership is tantamount to
a greater Soviet security commitment. Although such regimes
almost certainly realize they stand no chance of joining the
Warsaw Pact, they may believe that formal CEMA membership
provides more of a guarantee against perceived threats from the
West than nonmembership, because it is a closer link to the
USSR. Unless Soviet leaders had explicitly decided to broaden
the USSR's military commitment, they almost certainly would try
to avoid giving that impression to a Third World client.
Insufficient Central Planning
CEMA is primarily a multilateral forum for the discussion of
economic issues concerning the USSR and the East European states,
such as the integration of their various industrial sectors. As
an organization, it has virtually nothing to do with meeting the
development needs of its less developed members, and nothing at
all with meeting those of other socialist clients or non-
Communist LDCs. Financially, it funds economic specialization
projects in the USSR and Eastern Europe and is a clearing house
for soft currency trade accounts among its members. Since
industrial integration and economic specialization presume that a
regime has a well-developed system for planning and mobilizing
its capital and labor resources, CEMA focuses almost all its
efforts on the USSR and the countries of Eastern Europe. The LDC
observers and applicants are much less suited to central planning
than the European members, which have larger industrial bases and
work forces, more facilities to train planning officials, and
apparatuses for gathering the economic data that give planners
the feedback they need on economic performance.
CEMA's focus on European-style developed economies is
evident in the founding charter, which states that admission
"shall be open to . . . countries which share the purposes and
principles of the Council"--foremost among which is the promotion
of "cooperation and development of socialist economic
integration." The June 1984 summit also illustrated this focus.
Judging from US State Department reporting and the summit's final
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communique, the members spent most of their time debating issues
of concern to the Soviets and East Europeans, such as securing
Soviet energy and raw material supplies and improving the quality
of East European goods exported to the USSR. Even though the
summit addressed the three poorer members' demands for more aid,
Third World issues were much lower on the agenda. In June 1985,
during CEMA's annual prime ministers' meeting in Warsaw, the
members again dwelt on issues primarily of concern to the
Europeans, such as cooperation between CEMA and the European
Community and Soviet supplies of natural gas to Eastern Europe.
Angola, Afghanistan, South Yemen, Laos, Mozambique, Ethiopia, and
Nicaragua again sent observers to the session, and the CEMA
countries reaffirmed their economic ties with Nicaragua--which
seems to have attended as a full-fledged observer for the first
time. The Ethiopian regime, however, was unable to move from
observer to member status, des ite strong indications that it had
expected to do so. 25X1
The lack of economic complementarity between CEMA's European
members and the LDC observers--reflected in their sparse trade
relations--would greatly inhibit economic integration in any
case. One observer calculated that the 1981 trade turnover
between CEMA members and the five observer countries amounted to
$1.8 billion, or only 4.6 percent of the members' trade with all
CEMA's orientation toward the developed members makes it
logical to assume that the USSR rejected the desperately poor
clients--such as Ethiopia, Afghanistan, and Mozambique--at least
in part because of their undeveloped economic infrastructures.
In 1981 a Soviet official reportedly said--perhaps not altogether
disingenuously--that Mozambique's application had been denied
because it could not provide qualified personnel to sit on CEMA's
many committees; he added that Mozambique had not yet developed
the full range of economic ties with individual CEMA members
needed for integration into the organization. A Czechoslovak
diplomat in Addis Ababa, discussing Ethiopia's bleak economic and
agricultural situation, pointed to a lack of planning--as
evidenced in the poor preparation of the program to resettle
drought victims--to explain the country's inability to feed
itself. He also commented on Ethiopia's deteriorating
infrastructure and unrealistic 10-year plan and said that a lack
of coordination among the various Ethiopian ministries often
delayed Czechoslovak aid-projects. An East German diplomat
agreed that Ethiopia lacked the economic structure to become a
full CEMA member. Several factors probably played a part in the
rejections of Mozambique, Ethiopia, and other LDCs, but their
inability to coordinate their economies with those of the
European members probably was one factor.
25X1
There are several LDCs that have economic planning
apparatuses and could perhaps have joined CEMA if that were the
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deciding factor. North Korea, Yugoslavia, Albania, and perhaps
even India are examples. These states, however, have decided not
to apply for membership in order to maintain their political
or are headed by Soviet citizens.
Fear of Losing Political Control Over CEMA
The USSR's overwhelming influence within CEMA ensures that
its preferences are carefully considered on such key policy
issues as the admission of new members. This influence is
apparent from the preponderance of Soviet citizens among CEMA's
professional personnel. Many of the Secretariat's most important
subdivisions--such as the Personnel Bureau, the Economic
Department, and the Department for Coordinating Economic and
Technical Aid to Developing Countries--either consist solely of
certainly is secondary to other considerations.
The issue of Soviet control has itself become a point of
contention, however. For several decades, Romania--in the name
of opposing "supranationalism"--has contested what it sees as
Soviet attempts to dictate economic policies to Eastern Europe
under the guise of "improving" economic integration. Because
CEMA meetings are closed and the only reporting on them is from
the participants, we have very little information on whether the
European or less-developed members form "coalitions" within CEMA
to take issue with Soviet positions. If other LDCs joined the
organization, the USSR probably would expect them to align
themselves with groupings that Vietnam, Cuba, Mongolia, or
Romania might form in an attempt to correct perceived inequities
in Soviet policies. We lack any evidence that the USSR did, in
fact, consider this factor when it denied the various
applications for membership; although plausible, it almost
West.
Implications and Prospects
Although the Soviets' aim in recent years has been to
consolidate CEMA by resolving disputes among the European
members, they also would seem to have a strong incentive to
expand its ranks. If only for political symbolism, Moscow might
want to demonstrate to the Third World the growing strength of
the Communist Bloc and the desirability of following the Soviet
model for economic development. Competition with China in the
Third World would seem to be another incentive for enlarging
CEMA. Far from seeking more members, however, the Soviets have
rebuffed some of their closest Third World clients and have
warned them not to jeopardize their economic links with the
The perception of the unacceptable cost of supporting new
members seems to be the most important factor in the rebuffs; a
great deal of evidence (particularly private and public
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membership, is not sufficient alone.
statements by Soviet and East European officials) testifies to
the strong views held about the significant cost of enlarging
CEMA, whereas the evidence supporting the other factors, while in
some cases substantial, is largely inferential. Such other
considerations as the stability of the particular LDC regime seem
to have played significant roles, but subordinate to the cost.
Even strategic importance, which appears to be a prerequisite for
Two factors could change, making Moscow more sympathetic
toward a future applicant:
-- The USSR's domestic economic growth rate could rise.
Sustained economic improvement could ease the current
taut allocation of funds among existing domestic
claimants, leaving more resources for new CEMA members.
This would lower the cost side in Moscow's cost/benefit
calculations.
-- The Soviets could perceive an increase in the political
benefits of bringing the particular LDC into CEMA. An
increase on the benefit side of the calculation might
warrant the added cost, even if Moscow's ability to carry
this burden remained unchanged.
We consider both of these changes to be unlikely:
-- Even though the Gorbachev regime appears anxious to
reinvigorate the economy, the new General Secretary may
not want, at least initially, to expend the political
capital it would take to make the types of systemic
changes required for sustained improvement. And if
economic growth did speed up, the military and the
consumer sectors in the USSR almost certainly would argue
that they--not the Third World--should be the first to
benefit.
-- Given the possible LDC applicants, Moscow currently has
little chance of making large political gains by
admitting more countries to CEMA. In fact, the Soviets
are likely to consider it politically advantageous to
refuse future requests.
For example, the Soviets could well calculate that upgrading
Afghanistan from observer to member would indicate Soviet
domination more clearly, marginally hurting President Karmal's
pretensions as a "nonaligned" Third World victim of "imperialist
aggression." They would especially want to avoid this during the
indirect negotiations between the Pakistani and Afghan
Governments presently being conducted under UN sponsorship in
Geneva, but Afghanistan might become a member if the Soviets
later became less concerned about preserving the fiction of its
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and the regime leaders may instinctively have preferred. 25X1
The USSR probably will not only refuse to accept more client
states into CEMA; it also may make "socialist-oriented" LDCs the
target of any economic aid cutbacks it may decide are necessary.
Since 1983, CEMA's three LDC members have been receiving more in
economic aid than Eastern Europe, and the observers also receive
substantial amounts. Should Moscow decide to reduce aid
allocations, these countries offer the biggest potential savings
and probably would be affected the most. As a result, resentment
among Soviet clients in the Third World could very well increase.
counsel radical regimes against pursuing policies that both they
Ethiopia's case) by using East European opposition. 25X1
Reluctance to underwrite the immense development needs of
destitute clients only partly explains why Moscow probably will
reject future CEMA applicants. The Soviets have learned that
they do not advance their long-term political aims in the Third
World by pushing socialist structures on ill-prepared countries
with ineffective bureaucracies, unskilled work forces, and
primitive market economies or by indicating an LDC's close
relationship to the Soviet Bloc with measures such as granting
formal CEMA membership. Most of the countries that have tried to
join CEMA have economies based on subsistence agriculture, very
small industrial sectors, minimal overall growth rates, and
chronic balance-of-payments problems. 25X1
The experience in Afghanistan in 1979 demonstrated the
disaster that can result when a radical regime quickly institutes
sweeping social and economic changes that the political system
cannot absorb. This "leftist adventurism" evoked broad
resistance and led to the need for large-scale Soviet military
involvement, costing the USSR considerable good will among
nonaligned countries and subjecting it to Western economic
sanctions. Similar "economic adventurism" destroyed the hopes
Moscow had nurtured during Salvador Allende's presidency in
Chile. These failures almost certainly convinced the Soviets to
from a massive flight of Western capital. Thus, we believe that
the USSR will probably discourage and, if necessary, reject
future aplications either directly or (as apparently occurred in
independence. As for indigent countries like Mozambique,
Ethiopia, and South Yemen, the Kremlin probably believes it is in
its own interest to encourage them to maintain relations with
private Western capital and multilateral institutions. It would
have to carefully weigh any possible political benefit from
admitting such countries against the added costs that would ensue
Thus, the Soviets have taken a calculated risk. By refusing
requests by CEMA observers and other client regimes for large
economic aid programs, Moscow in effect has left these regimes
little alternative but to turn to the West for aid. For example,
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by providing less aid than Mozambique sought in 1982-83, Moscow
contributed to its turning to South Africa for military and
economic relief and the signing of the Nkomati Agreement in March
25X1
For example, the Soviets have trumpeted their willingness to
allow Peru to pay off its debt to the USSR with manufactured
goods, contrasting this to the harsh terms imposed by the 25X1
International Monetary Fund.
measures against LDC exports.
25X1
To counteract this tendency, the Soviets will actively seek
to capitalize on factors in the global economy that tend to
alienate LDCs from Western influence. They probably will
continue to seek barter arrangements to take advantage of Third
World frustration over the debt crisis and Western protectionist
own economy.
prevent them from straying too far into the Western camp. Q 25X1
The decision that Moscow appears to have made--to keep CEMA
at its present size--and its paltry economic aid record probably
have ramifications beyond radical LDCs. The Kremlin's economic
aloofness from its own clients illustrates to nonaligned LDCs the
peril of relying on the East for development aid. The Soviets
already have to deal with a growing tendency in Third World
states, especially those in West Africa, to turn away from
central planning and toward market mechanisms. And non-Communist
LDCs probably will become increasingly disenchanted as the
Soviets, in response to domestic economic stringencies, continue
to emphasize those economic aid projects that most benefit its
Third World Soviet clients need. Even if Western countries did
bail out these LDCs, Moscow would have good reason to think that
the military and security aid ties it has forged with them would
compensate for stinginess toward economic development needs. ~ 25X1
As part of its gamble, Moscow probably calculates that the
West also will be unwilling to spend the billions of dollars the
probably find such aid to be more important than economic
assistance, at least initially. Some LDCs are also eager for
Soviet aid in developing state-sector industries, in which
Western firms often refuse to invest. These types of Soviet
military, security, and economic aid offers may more than
The Kremlin probably believes these risks are acceptable
because it has other ways to retain influence in radical Third
World states. Military equipment and advice, for example, can be
crucial in helping fledgling regimes secure and maintain state
power. Moscow also can influence a client by building up its
internal security force and helping its leaders create the
political organizations they need to retain power; many clients
I, by allowing Peru
to repay its ebt with goods rather than cash, Moscow has gained
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a tremendous amount of good will
The Kremlin probably realizes that
Peruvian leaders welcome sales to the Soviet market as a way of
reducing unemployment in Peru's hard-pressed industrial sector.
The diplomat stated that the USSR's objective in negotiating this
agreement was more political than commercial; he commented that
Moscow would consider similar arrangements with other Latin
American countries and expected this flexibility to aarner aood
will for the USSR in other geographic regions.
Overall, the West may find it difficult to capitalize on the
USSR's unwillingness to give the economic aid desired by Soviet
clients and the non-aligned LDCs. Although the United States and
its allies would seem to be in a good position to lure
disaffected LDCs from the Soviet camp, the effort is bound to be
complicated and sometimes unsuccessful. To translate the Third
World's disaffection with Soviet aid policies into good will
toward the West is another complex undertaking; economic
assistance could simply become a mechanism for shoring up pro-
Soviet Marxist regimes. Western leaders will have to expect that
any gains they may make from Third World dissatisfaction with
Soviet economic aid will depend on their skillful analysis and
manipulation of circumstances peculiar to each developing
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Moscow grants several lesser degrees of participation to
countries not in its camp:
-- Associates. Yugoslavia held observer status from 1956 to
3958, an w"since 1965 it has been affiliated as an
"associate" under a special agreement.
-- Observers. China became an observer in 1956, rejected an
invitation to join in 1962, and participated in some
standing committees from 1962 until 1966. The six CEMA
observers are North Korea (1957), Laos and Angola (1976),
Ethiopia (1978), South Yemen (1979), and Afghanistan
(1980). It appears that Nicaragua became a formal
observer in 1985, although we do not have any
authoritative statement from CEMA on this matter. North
Korea attended CEMA sessions from 1976 to 1978 and then
stopped, according to open reporting. Its spotty
attendance was due not to a Soviet rebuff but to its
decision to follow China's lead in foreign policy.
-- Lower Level Observers. Kampuchea and Mozambique also
have attended some MA meetings, but open-source listing
do not consistent include them as full-fledged
observers. These countries have participated in low-
level technical meetings, such as those discussing
cooperation in transportation and energy.
-- Special Agreements. Four other nonmember states--Iraq,
Mexico, Nicaragua, and Finland--have signed special
agreements with CEMA covering commercial, scientific, and
technological cooperation. The agreement with Iraq, for
example, calls for aid to the oil and gas industry, the
power generation sector, and agriculture.
Because CEMA is, above all, a "socialist club," Finland, Iraq,
and Mexico do not normally attend its regular sessions. Mexico,
however, attended the ministerial meeting in Havana in October
in 1961.
Types of Association with CEMA
When CEMA was formed in 1949, its members were Albania,
Bulgaria, Czechoslovakia, East Germany, Hungary, Poland, Romania,
and the USSR. After periods of observer status, Mongolia, Cuba,
and Vietnam acceded to full membership in 1962, 1972, and 1978,
respectively. Albania stopped participating in CEMA activities
1984.
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The Hardening of Soviet Views on
"Leveling" Among Socialist CountF-ies
In 1959--at a time when CEMA had no Third World members--
Khrushchev stated in Pravda that all Communist countries would
achieve the stage of "full Communism" at about the same time.
Among the goals listed in Article I of the May 1960 CEMA Charter
is "the raising of the level of industrialization in the
industrially less developed countries." The authors apparently
intended this phrase more as an ideological truism than as
acknowledgement of an obligation. A Soviet official, commenting
on this part of the charter, said:
In the process of realizing this goal, countries with less
developed economies are quickly raising their national
products to the level of the leading states of the socialist
camp, (and) the level of economic development of all the
countries of socialism is rising.
In 1971, CEMA's "Comprehensive Program" referred to leveling
as a firm policy--a low-cost gesture when the only LDC member was
lightly populated Mongolia. By 1972, the year Cuba joined,
Soviet rhetorical support for leveling had grown feebler. In
that year, with Brezhnev firmly in power, the doctrine of "full
Communism" was off the menu, and Cuba's admission did not
represent a firm CEMA promise to raise its economy rapidly to
East European levels. (However, changes in the world prices of
oil and sugar soon translated themselves into increased economic
aid, as the USSR's trade subsidies for these commodities
ballooned.) Similarly, at Vietnam's admission in 1978 the Soviet
and East Europeans made no commitment to rapid leveling.
Although the term leveling has virtually disappeared from
Soviet speeches and articles, admitting LDCs to CEMA would still
be risky for the USSR. Newcomers would quickly draw attention to
the increases in Soviet aid to Mongolia, Cuba, and Vietnam after
their admission. By the mid-1970s, as declining economic growth
strained the USSR's limited capacity to provide aid, some Soviet
specialists questioned the cost of supporting existing client
states and acquiring more.* As it became clear that Moscow could
not help poorer socialist states pull even with Eastern Europe
economically, Soviet specialists began to distinguish between
members of the "socialist Commonwealth," such as Cuba and
Vietnam, and socialist-oriented states with observer status, such
*See, for example, Elizabeth Valkenier, The Soviet Union and
the Third World: and Economic Bind. New York: Praeger, 1983, pp.
25X1
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e I I
as Angola and Ethiopia. In 1981 Brezhnev described the situation
in the Third World as "complicated," and at the June 1983 Central
Committee plenum, Andropov added to the new sense of realism by
stating:
It is one thing to proclaim socialism as one's goal and
another thing to build it. . . . Socialist countries .
. . contribute, to the extent of our ability, to (LDCs')
economic development. . . . But, on the whole, their
economic development . . . can be, of course, only the
result of the work of the peoples and a correct policy of
their leadership.
In his September 1984 address to the UN General Assembly, then
Foreign Minister Gromyko repeated the warning that Moscow would
render aid only "to the extent of its capabilities."
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In 1973 the European CEMA nations signed an agreement with
the IIB to establish a fund to "encourage the development of the
national economies of the developing countries." The fund is
supposed to advance credits for periods up to 15 years to
industrial and agricultural enterprises. A 1974 CEMA publication
revealed that the fund--to the extent it operates--virtually
limits itself to disbursements that the LDCs can use only to buy
goods from CEMA countries. The publication admits that of the
fund's resources (supposedly worth the equivalent of 1 billion
transferable rubles) only 5 percent is available in the form of
convertible currency; the rest is in transferable rubles.
Observation of the IIB's activities fails to show that any
country (except perhaps Nicaragua) has actually drawn on the
fund, and it is not mentioned in a 1979 review of CEMA activities
that included a lengthy discussion of cooperation with the Third
countries rather than on the LDCs, members or nonmembers.
clearing house for soft currency (in "transferable rubles" for
example) trade accounts among the East Europeans and the
Soviets. Both banks have also raised hard currency to lend to
CEMA countries, but their emphasis is decidedly on the developed
CEMA's main financial activities have virtually nothing to
do with aiding the Third World. Its International Investment
Bank (IIB) provides funds to projects, primarily in the USSR and
Eastern Europe, that promote intersectoral specialization, and
its International Bank for Economic Cooperation (IBEC) acts as a
or the East Europeans to send aid to the new member.
to our review of open-source documents, it does not appear to
establish multilateral aid projects or coordinate bilateral
projects from the socialist Bloc to prevent overlap. An LDC's
admission to CEMA does not formally obligate either the Soviets
LDCs: A Peripheral Concern for CEMA
Extending economic aid to the Third World, even to LDCs
aligned with the USSR, is subsidiary to CEMA's central purpose.
The amount of energy its European members spend on the economic
problems of Vietnam, Cuba, and Mongolia (let alone the observers)
is minute compared to that spent on issues of concern to
themselves--the specialization of their industrial sectors and
the settling of their trade accounts. CEMA's role in relation to
LDCs appears similar to that of OECD's Development Assistance
Committee, which compiles and analyzes foreign aid information
submitted by OECD members. In CEMA this is done by the
Department for Coordinating Economic and Technical Aid to
Developing Countries, a subsidiary of the Secretariat; according
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probably was a result of Soviet prodding.
Nonetheless, the USSR has obtained a few burden-sharing
commitments. Bulgaria has agreed to aid Vietnam and Cuba, and
State Department sources state that CEMA's other developed
members agreed in mid-1984 to increase their purchases of Cuban
citrus products and nickel over the next five years. According
to the US Embassy in Havana, Vice President Rodriguez has said
that Cuba's CEMA partners agreed to reschedule the country's
debt, postponing payment of principle from,1986 to 1991: this
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APPENDIX 4
Recent Soviet Pressure on Eastern
Europe To s LDC Members
After the CEMA summit in June 1984, the USSR stepped up its
longstanding but low-key efforts to persuade Eastern Europe to
share the burden of supporting the LDC members. This was in part
an attempt to reduce its own aid burden. Some East European
economies are growing more slowly than the Soviet Union's, but
Moscow probably points out that several of the countries have
higher per capita income and consumption levels than the USSR and
therefore should raise their contributions. Results have been
mixed.
In a 1982 article, Yurii Novopashin, an official at the
Institute of Economics of the World Socialist System, argued for
greater coordination by Communist states in their aid policies,
and a Krasnaya Zvezda article in November 1984 stated that the
CEMA countries considered it their duty to help Vietnam, Cuba,
and Mongolia to develop their agricultural sectors. Such
articles probably are hints from Moscow that Eastern Europe
should take up more of the slack.
We believe the Soviets tried to persuade the East European
delegates at the June 1984 CEMA summit to accept a more direct
commitment to accelerate the three LDCs' economic development.
The final communique on economic matters noted vaguely that one
of CEMA's most important tasks is to raise those countries'
economies--but failed to elaborate on how to do so. Nonetheless,
various US embassy reports suggest that the Kremlin has cited
this commitment in its effort to increase the East Europeans' aid
to the three poorer members and reduce its own burden.
Lukewarm seems to be the word for the East European
response. According to the US Embassy in Prague, Czechoslovak
Prime Minister Strougal admitted in a speech at the CEMA
ministerial meeting in October 1984 in Havana that "a lot must
still be done in the negotiations with non-European CEMA states,
where credit aid plays an important role in mutual relations."
His further remark that "we would like to continue our aid to
Cuba, Mongolia, and Vietnam" was probably much less than the
Soviets wanted. As for Nicaragua, a Hungarian official has told
the US Embassy in Budapest that Eastern Europe cannot afford to
keep the Sandinistas afloat--and even if it could, it does not
wish to do so, given the distance and circumstances involved.
When Nicaraguan President Ortega visited Budapest in May 1985 in
search of aid, the Hungarian news service--noting that "Hungary,
commensurate with its resources, supports the Nicaraguan
people"--emphasized political solidarity, in the United Nations
and elsewhere, rather than economic aid.
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Methodological Note
The definition of economic aid used in this paper is
considerably broader than that normally used to calculate Western
economic assistance. OECD "official development assistance"
includes only grants, loans with a minimum 25-percent grant
element (based on interest rates, length of repayment, and grace
period), and "technical cooperation" (that is, grants for
training LDC nationals at home or abroad). The CIA has defined
Soviet economic aid to client states to include not only those
conventional forms of aid but also price subsidies on exports and
imports, direct grants, and credits on concessionary terms for
trade and development.
The USSR 's price subsidies to Eastern Europe climbed
dramatically during the 1970s have fallen in recent years
just as dramatically. In the early 1970s the USSR sought to
cushion the impact of large price increases on the planned
economies of the Soviet Bloc by agreeing to base the prices of
primary products traded within CEMA on a moving average of world
market prices. For petroleum, for example, the CEMA countries
agreed to use a five-year moving average of world prices,
starting in 1975. With world oil prices trending downward over
the past few years, intra-CEMA oil prices have caught up with the
world prices and the annual subsidy has all but disappeared.
Moscow also has provided price subsidies to CEMA's less developed
members. A large part of the Soviets' price subsidy to Cuba has
been for purchases of sugar, for which in many years they pay
considerably more than the world market price. 25X1
The direct grants that Moscow has furnished to Communist
countries have been for both economic and military purchases. We
believe that Soviet military aid to Cuba and Vietnam, for
example, is on a grant basis. The USSR provides credits--often
on highly concessionary terms--to both Communist and non-
Communist countries to finance economic development, trade, and
military purchases. It is difficult to measure the concessionary
element in Soviet credits, but their cost to the USSR can
probably be most closely approximated (in the case of Moscow's
bilateral clearing account trade partners) by the Soviet current
account surplus with these countries. 25X1
In this paper, Soviet aid flows to CEMA's three LDC members
and to North Korea and Laos are defined to include, where
applicable, our estimates of trade and development aid, technical
services, subsidies for oil and other commodities, and credits on
concessional terms. East European aid flows to North Korea,
Mongolia, and Cuba are estimated from annual trade surpluses with
those LDCs. This approximation probably is slightly less than
the actual total because it omits the trade surpluses of East
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Germany, which does not disaggregate exports and imports in its
published trade statistics.
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