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• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T00587R000100040002-3
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• Document Creation Date: January 12, 2017
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• Sequence Number: 2
• Publication Date: January 1, 1985
• Content Type: REPORT

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Directorate of
Intelligence
Afghanistan's Economy:
Growing Dependence on the
Soviet Union F-1
NESA 85-10004
January 1985
Copy 4 0 3
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Directorate of Secret
1A Intelligence
Afghanistan's Economy:
Growing Dependence on the
Soviet Union F-1
This paper was prepared byl Office of
Near Eastern and South Asian Analysis. It was
coordinated with the Directorate of Operations.
Comments and queries are welcome and may be
directed to the Chief, South Asia Division, NESA,
Secret
NESA 85-10004
January 1985
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Secret
Afghanistan's Economy:
Growing Dependence on the
Soviet Unions
Key Judgments The Soviets have become increasingly involved in supporting the Afghan
Information available economy, which has been disrupted by continuing hostilities and the
as of 15 November 1984 dislocation or exodus of up to half the population. The financial costs are
was used in this report.
relatively small, however, and are almost certainly an insignificant factor
in determining Moscow's stay in Afghanistan. At the same time, the
economic dependence of the Afghan regime on Moscow helps keep it under
Moscow's thumb. F_7
The Soviet involvement touches every sector of the Afghan economy:
? Most of the cities depend on the Soviets for at least some of their food
supplies.
? With a decline in Western aid and trade, the Soviets now account for al-
most all of Kabul's foreign assistance and about 70 percent of the
country's imports. Since the invasion, the Soviets have provided the
equivalent of about $1.3 billion in economic assistance, mostly in the
form of grants for commodity imports.
? Afghanistan's export of natural gas-the country's major resource-to
the Soviet Union provides 45 percent of government revenues.
? Natural gas production and exploration, the search for minerals, and the
remaining economic development projects are completely in the hands of
the Soviets.
Although overall food output is probably near the levels reached in the
1970s, some rural areas are facing serious food shortages because of
insufficient moisture and military operations. We believe that in areas
where domestic supplies are insufficient, particularly near the eastern and
southern borders, shortages are largely alleviated by imports from Paki-
stan. F_~
The military situation makes an improvement in the Afghan economy
unlikely any time soon. The Afghan Government and the Soviets lack the
military strength and the popular support needed to win effective control of
rural Afghanistan. Without such control, the government will be unable to
resume development or expand its earnings. Meanwhile, the Afghan
population will become increasingly dissatisfied, and more Afghans are
likely to join the insurgents.)
Secret
NESA 85-10004
January 1985
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Afghanistan's Economy:
Growing Dependence on the
Soviet Union n
Afghanistan has few natural resources. Per capita
income is among the lowest in the world. Most of the
labor force is employed in agriculture, but less than
10 percent of the country is under cultivation because
of mountainous terrain and lack of rainfall. Economic
development received a boost with the discovery of
large natural gas deposits in 1976.1
Economic growth in Afghanistan, while difficult to
measure because of unavailable or unreliable data,
probably averaged only 2 to 4 percent annually from a
very low base throughout most of the 1970s. Afghani-
stan relied heavily on external financial assistance in
the form of loans and grants from Communist and
non-Communist governments for agricultural and in-
dustrial development and commodity imports. By the
late 1970s, Kabul also was receiving a significant
inflow of remittances from workers in the Middle
East. FI
Agricultural output was growing, albeit slowly, as a
result of increased mechanization, better seeds, im-
proved fertilizer distribution, and irrigation projects.
The agricultural sector accounted for about two-
thirds of the gross national product. Farming was-
and is-primitive, with production in any year heavily
dependent on the weather. Agriculture has always
been almost exclusively in private hands, with most of
the rural areas never totally controlled by Kabul.
Industry assumed some importance in the last two
decades with the domestic utilization of natural gas
and the introduction of manufacturing plants to proc-
ess domestically grown agricultural products. The
public sector controlled most of the industrial activity.
The Afghan Economy at a Glance
The compilation of national income statistics for
Afghanistan involves a considerable degree of estima-
tion because much of the information is unavailable
or unreliable. The government's lack of access to
much of the countryside and the fact that most of the
food production is for on-farm consumption compli-
cates the task.
Population-midyear 1984
Natural gas production-
FY 1984
Natural gas exports-FY 1984
Balance of payments-FY 1984
Exports (f.o.b.)-FY 1984
Imports (c.if.)-FY 1984
Foreign exchange reserves-
FY 1984
Foreign debt-FY 1984
Exchange rate
Official
Bazaar-July 1984
14 million
2.8 billion cubic
meters
2.4 billion cubic
meters
-$170 million
$680 million
$940 million
$205 million
Af 50 per US $
Af115perUS$
strengthened public-sector role in transportation and
distribution, and closer ties to the USSR. The govern-
ment alienated many of the landowners, religious
leaders, and peasantry, and the economy has deterio-
rated.F-1
After the leftist takeover in 1978, the government
attempted to make fundamental changes in the coun-
try's economic system including land reform, a
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 Agricultural Problems and Resiliency
Since the Soviet invasion, the agricultural sector has
faced numerous disruptions.
large numbers of landowners have fled the
country, taking valuable machinery and livestock with
them. The flight of about 3 million people to neigh-
boring Pakistan and Iran and the displacement of 3-4
million people within Afghanistan have reduced culti-
vation as well as demand in many areas. Routine
maintenance of vineyards, orchards, and irrigation
networks is being neglected.F--]
A survey conducted by US and Afghan scholars in
1983 concluded that most of the refugees fled their
homes because of the disruption of the rural economy
caused by the war. According to the scholars, produc-
tion of wheat, the major food staple and agricultural
crop, declined as much as 80 percent from the period
25X1 before the fighting in some areas bordering Pakistan.
Farmers in areas most affected by the war faced the
possibility of starvation.
Soviet,
ation for insurgent operations.
Afghan Government, and insurgent military opera-
tions have resulted in burned crops, damaged grain-
fields, and destroyed irrigation systems. In some cases
the Soviets have deliberately destroyed crops in retali-
25X1 Oland along major transportation routes and
around military bases is out of production either
because the Soviets, wanting a security zone, have
forced out farmers or because the farmers fear for
their lives.)
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Local observers )indicate,
however, that the destruction caused by military
operations affects only a small portion of the land
under cultivation, and we believe the Soviets generally
allow the agricultural sector to operate as it did before
the invasion.
the Soviets admit that reduced production of food in
rural areas would only force the USSR to increase
supplies of food to urban areas. Most farmers operate
at the subsistence level and do not depend heavily on
modern equipment, fuel, chemical fertilizers, im-
proved seeds, or pesticides.
Production of industrial crops, even according to
government statistics, has dropped dramatically. Har-
vests of cotton, the most important commercial crop,
and sugar beets have declined by two-thirds since the
mid-1970s.
some of the land and labor used to produce
these crops are now used to produce basic foodstuffs.
The availability of basic food items in FY 1984 and
most of FY 1985 probably was near the levels of the
1970s. An analysis
h
us to t
at in each last two years 2.8-3.3
million metric tons of wheat have been available from
domestic production and imports to feed roughly 14
25X1
25X1
25X1 1
25X1
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Figure 1
Major Grain-Producing Regions and Gasfields in Afghanistan
Boundary representation is
not n"
CJ
0
Grain-producing region
Gasfield
Gas pipeline
Petroleum-products pipeline (dual)
Internal administrative boundary
Road
0 100 200 Kilometers
I I .
0 100 200 Miles
7
million people. Afghanistan was generally considered
self-sufficient in wheat in 1976 when wheat produc-
tion reached 2.9 million tons and the population was
roughly 14.5 million. Nonetheless, shortages still oc-
cur-especially in the rural areas-because of crop
failures in isolated areas, distribution problems, pri-
vate stockpiling and hoarding, and the destruction of
some food in storage.
as that of the 1970s. We estimate the FY 1984 wheat
crop at 2.5-3 million metric tons, and a comprehensive
analysis of meteorological 25X1
data indicates that output in FY 1985 will decline by
about 10 percent because of less than normal rain and
snow. Although we cannot measure production of all
crops, we believe the wheat harvest is a useful indica-
tor of total food production.
Domestic Food Production
We believe that annual domestic food production
since the Soviet invasion has been in the same range
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Agriculture in Afghanistan
Agriculture is the most important sector of the
economy. In the mid-to-late 1970s, agriculture pro-
vided about 60 percent of national income and em-
ployed 80 percent of the population. Agricultural
output grew by 3 percent annually in the mid-1970s,
and the country was roughly self-sufficient infood-
grain production in 1977. FI
Afghanistan's cultivated land is scattered throughout
the country, mostly in valleys along rivers and other
sources of water because rainfall is uncertain and
inconsistent. Only 8 million of Afghanistan's nearly
65 million hectares are arable, and, throughout the
mid-to-late 1970s, Afghan farmers cultivated on av-
erage only about half of the arable land. Total
25X1 irrigable area is about 5.3 million hectares, of which
about 2.6 million were irrigated annually with the
balance remaining fallow. About 1.4 million hectares
of irrigated land have adequate water throughout the
year to make double cropping possible.
The production offoodgrains utilizes 90 percent of
land under cultivation. The remaining 10 percent has
been devoted primarily to fruits, vegetables, cotton,
oilseeds, and fodder crops:
? Wheat, the primary grain crop and main food
staple, is grown on about 60 percent of the cultivat-
ed area-2.4 million hectares. It is grown through-
Y 1985, we
1981 to 160,000-180,000 tons in FY 1984.
Imports Fill Food Gap
We estimate that between 300,000 and 360,000 tons
of wheat were brought into Afghanistan-about half
from the USSR and half from Pakistan-in FY 1984.
According to Soviet and
Afghan press reporting, wheat imports from the Sovi-
et Union increased from about 75,000 tons in FY
the poor crop this year.
speculate t at imports of wheat may decline slightly
because of favorable domestic production in FY 1984.
We expect an import increase in FY 1986 because of
out the country and on half of the irrigated land. In
1976 wheat production reached a record 2.9 mil-
lion metric tons, and no imports were required.
? Corn is the second most important cereal and is
used for human consumption and animal fodder. It
is planted on about 500,000 hectares, and average
production has been about 800,000 tons. Corn is
grown primarily in the eastern valleys bordering
Pakistan and in the Helmand Valley.
? Rice is grown principally in the north around
Baghlan and Konduz; other ricegrowing areas are
Herat, Nangarhar, and Helmand. Rice is planted
on about 200,000 hectares, and peak production
reached about 450,000 tons in 1976.
? Barley is grown on about 300,000 hectares primari-
ly in rainfed highland areas with short growing
seasons. It is used for human consumption and
animal feed. Peak output was about 400,000 tons in
1976.
? Truck gardens, cultivated orchards, and vineyards,
while utilizing less than 10 percent of the arable
land, yield an important harvest of vegetables,
fruits, and nuts. Peak production was about 1.6
million tons in 1976.
ost of the Soviet grain
is sent to Kabul, where the population increased to
nearly 1.8 million in 1983 from 913,000 in 1979, and
to other major cities; the Soviets maintain garrisons
near most cities. migra-
tion from rural to urban areas, disruption of transpor-
tation, and the government's inability to collect grain
and other agricultural products in insurgent-con-
trolled areas left urban areas with serious shortfalls.
25X1
25X1
25X1
25X1
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Rural Afghanistan, most of which is controlled by
insurgent groups or subject to only limited govern-
ment control, appears to be almost self-sufficient in
food production.
most of the insurgents obtain their food from the local
population. F__-]
We believe that in most of those rural areas where
domestic supplies are insufficient, particularly near
the border with Pakistan, shortages are alleviated by
imports. Western observers estimate that 140,000 to
180,000 tons of wheat are brought in annually from
Pakistan through unofficial channels. The US Embas-
sy in Kabul assumes that a large share of these
25X1 supplies is diverted from the refugee camps in Paki-
stan, but the Afghans also
purchase surplus grain from the Pakistanis.
Food Prices Continue To Rise
Food prices throughout Afghanistan have climbed
rapidly in the past five years-averaging more than
25 percent annually-but no faster than nonfood
items, according to spot price surveys and official
25X1 government statistics.
Da wide range in prices from province to province
25X1 depending on the degree of self-sufficiency in the area
and whether the survey was taken before or after the
harvest. Kabul food price increases generally have
been much more modest than in the rural areas,
primarily because the sizable Soviet food deliveries to
Figure 2
Afghanistan: Foodgrain Production,
1970-85a
Total grain
a Fisca0 March. 1970-84
Note: A review of agricultural production for the past
15 years shows that Afghanistan's crop production is
dramatically affected when precipitation is inadequate.
Even in the better farming areas, rainfall averages less
than 40 centimeters a year. Winter snows and spring
rains provide almost all of the water for irrigation; little,
if any, rain occurs during the summer months.
Droughts occur periodically, most recently in 1970-71
and 1977. Two years of precipitation 40 percent below
normal in the barly 1970s led to a wheat harvest 20
erceow normal.
the capital ensure a degree of normality in daily life.
Food prices are fixed and heavily subsidized by the
government. F_~
We believe that increases in the money supply and
spiraling transportation costs have had a greater
effect on food prices than have actual shortages. The
local money supply officially has been growing at
about 20 percent annually. In addition,
large sums of local currency are being
shipped in by the Soviets to help finance operations in
the countryside.
25X1
25X1
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The Soviet Union meets much of Afghanistan's ener-
gy needs. Even before the Soviet invasion, Kabul was
dependent on imports of petroleum products trucked
overland from the Soviet Union. Subsequently, the
Soviets have laid two small parallel oil pipelines from
the Soviet border to the Bagram Airfield near Kabul.
The pipelines are designed primarily to supply Soviet
military forces, but, because convoys coming from the
Soviet Union to Kabul are often ambushed or de-
layed, we believe that some supplies probably have
been used for civilian purposes.)
Despite Soviet supplies, US Embassy reporting indi-
cates that Kabul has suffered periodic shortages of
virtually all petroleum products since 1980. We be-
lieve most of these shortages have resulted from
Soviet refusal to ship fuel until overdue accounts are
paid and from delays caused by insurgent attacks on
convoys and the pipelines from the Soviet Union.
War-related disruptions of electricity are also making
Afghanistan increasingly dependent on the Soviets for
deliveries of fuel for electric power generation. Ac-
cording to the US Embassy, brownouts and supply
interruptions in Kabul are frequent because of insur-
gent sabotage of transmission lines carrying hydro-
electric power to Kabul as well as a lack of rainfall
and snowmelt to power the hydroelectric generators.
The US Embassy reports that electricity shortages in
Kabul in 1984 have been among the worst since the
Soviet invasion. Other cities such as Herat and
Qandahar also are facing serious interruptions of
electricity because insurgents have cut transmission
lines and fuel supplies used for government and
private generators. F__1
Improving the electric power supply will entail greater
Soviet involvement. Early this year the Soviets linked
Afghanistan's new river port on the Amu Darya,
Jeyretan, to the Soviet electricity grid with a high-
voltage line from the Uzbek S.S.R. The line is
scheduled to be extended to Mazar-e Sharif-an
industrial city in northern Afghanistan. According to
official statements, the Soviets also are planning an
electric powerline from the Soviet Union through
Kholm and Pol-e Khomri to Kabul intended for
industrial enterprises. Other cross-border lines are
being built in Towraghoudi, in Badghis Province, and
to Konduz. F__~
The Soviets dominate production and distribution of
Afghanistan's natural gas, the country's most impor-
tant natural resource and major export. Since 1957
the Soviets have provided credits, equipment, and
technical assistance for development, and the Soviets
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25X1
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import nearly 90 percent of Afghan gas production.
This gas, while not vital to the Soviets, is a useful
supplement to fuel supplies in areas bordering Af-
ghanistan as well as a feedstock for a nearby petro-
chemical plant. The Afghans use the remainder of
their natural gas output in a nitrogenous fertilizer
plant and a gas-fired electric power station in Mazar-
e Sharif, a textile factory in Balkh, and the city of
Sheberghan.F-1
The Afghans have told
that gas production probably will not show
damage to production facilities, shortages of agricul-
tural raw materials, internal transportation difficul-
ties, power outages, shortages of skilled labor, and the
25X1 loss of Western markets.0 25X1
any significant change in the next few years from the
current level of 2.8 billion cubic meters annually.
They reported that three new gasfields should come
onstream toward the end of the 1980s, but we believe
that at best the new fields will only forestall a gradual
decline in output. Special efforts already are needed
to maintain production because the reservoir pressure
is falling in existing fields. Western energy experts
believe there is little likelihood that significant new
discoveries will be found. Occasional insurgent ha-
rassment of Soviet exploration teams and interruption
of supplies have made the search for, and development
of, new gas deposits difficult.
Gas exports to the Soviet Union last year were
officially reported at 2.4 billion cubic meters com-
pared with the 2.9 billion cubic meters delivered in
1975.' According to a Kabul press report, the FY
1985 contract for exports to the USSR calls for no
increase in volume. To ensure exports the pipeline
from Sheberghan to the Soviet border is guarded by
KHAD (Afghan intelligence), Afghan Ministry of
Interior Forces, and the Soviets rather than the less
trustworthy Afghan Army.F_~
Figure 3
Afghanistan: Natural Gas Production,
1975-84-
a Fiscal year ends 20 March.
b New field on stream, but output significantly less than original target of
4 billion cubic meters.
receives about $125 per thousand cubic meters-a
reasonable price for its major export. Gas exports now
account for about 45 percent of government revenue
compared to less than 25 percent before the invasion.
25X1
25X1
Other Industry and Mineral Sectors
Remain Depressed
The performance of the other industrial sectors has
The Soviets valued FY 1984 gas imports at $300 been weak in recent years, with production declines
million. Moscow has tripled the price it pays Kabul particularly pronounced in the textile, sugar, and
for gas since the invasion, and Afghanistan now vegetable oil industries. The decline is caused by
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Exploration, primarily by the Germans, French, and
Russians, has demonstrated that Afghanistan pos-
sesses valuable mineral deposits. Just before the Sovi-
et invasion, Moscow was negotiating with Kabul to
build a $600 million copper smelter at Amiah and
develop the iron ore deposits at Hajji Gak. We have
seen nothing to indicate that the Soviets are progress-
ing on the projects or upgrading the transportation
network necessary to remove these mineral resources
for further processing or export. The iron ore deposits
in particular are located at a high altitude in extreme-
ly difficult terrain. F--]
the Soviets are continu-
ing mineral exploration in areas that are relatively
secure. We also believe the Soviets are taking ore
samples to determine the quality of the deposits. The
Soviets have some facilities for testing in Afghanistan.
We believe the Soviets will be in a position to identify
and develop potentially rich mineral deposits if the
security situation improves. F__]
Table 1
Afghanistan: Balance-of-Payments
Summary a
Current
account
balance
-3
-181
-112
-294
-157
-186
Trade
balance
-28
-229
-193
-350
-251
-260
Exports
(f.o.b.)
218
494
705
691
708
681
Imports
(c.i.f.)
-246
-723
-898
-1,041
-959
-941
Net
services
25
48
81
56
94
74
Nonmonetary
capital
19
259
300
164
147
111
Errors and
omissions
10
-18
7
97
-60
-93
Overall
balance
Afghanistan's foreign payments position went into the
red in FY 1982, and the deficit probably reached
about $170 million in FY 1984 as a result of stagnat-
ing exports, high imports, a decline in worker remit-
tances through official channels, and a cutback in
foreign assistance from Western donors and multilat-
eral aid institutions. Official foreign reserves have
fallen to just over $200 million, less than half that in
1979 and equivalent to less than three months of
imports. Throughout most of the 1970s and even into
the early 1980s, Afghanistan had a balance-of-pay-
ments surplus primarily because of sizable worker
25X1 remittances, an expanding tourist industry, foreign
aid, and rising exports of natural gas to the Soviet
Union.)
External debt has grown rapidly. The official debt
was $2.4 billion last March, an amount more than
three times the current annual value of goods and
services reported by the government and twice the
preinvasion debt level. Over 80 percent of the debt is
owed to Communist countries, primarily the USSR,
with long maturities and at relatively low interest
rates. The Soviets have repeatedly allowed the Af-
ghans to delay payments of interest and principal.
Western Aid Dries Up
Individual Western countries and most multilateral
institutions have cut off economic assistance to Af-
ghanistan. The Afghan Government also has been
denied access to an additional $1 billion in develop-
ment funds promised by the oil-producing states.
Total aid from Western countries and the Organiza-
tion of Petroleum Exporting Countries was about
$100 million annually in the late 1970s. In December
1980 the World Bank had almost 20 projects under
way or proposed involving credits totaling more than
$200 million. In October 1981, however, it canceled
all but about $30 million in credits and currently is
not making disbursements. The UN Development
Program is one of the few international agencies that
has maintained funding in Afghanistan, but annual
contributions have declined to a few million dollars.
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Figure 4
Afghanistan: Foreign Exchange Reserves,
1978-848
400
i J
350
250
200 1
Soviet economic aid has become critical. The decline
in Afghan economic activity, the inability to collect
taxes and buy food in most of the rural areas, the
decline in Western assistance, and the exodus of many
educated officials have made it difficult for the
government to provide sufficient food, fuel, and other
services for areas under its control. Only with Soviet
economic assistance-at least $1.3 billion since the
invasion-and a tripling of the price the Soviets pay
for gas has Kabul been able to meet its import
requirements.
Until the invasion, Soviet sales of commercial goods
and economic assistance were nearly balanced by
Afghan exports of gas. Subsequently, the Soviets have
provided about $1 billion in grants, generally to cover
deliveries of food and other basic commodities, and
about $100 million in hard currency to settle barter
accounts so that the Afghans could procure consumer
goods from third countries. The Soviets have also
Table 2
Afghanistan: External Public Debt
682 1,811
United States 110 113
West Germany 79 100
Czechoslovakia 21 91
permitted Afghanistan to defer payments on the
services of Soviet technicians, for which the USSR
usually requires cash payments.
While security problems have delayed major develop-
ment plans, the Soviets still provide $50-100 million in
project assistance annually. Much of this is for trans-
portation projects that support Soviet troop move-
ments and resupply. Moscow has also promised to
continue oil and gas exploration, complete the Mazar-
e Sharif thermal power plant, reconstruct the Tow-
raghoudi railway station on the Soviet border, and
link Afghanistan to the USSR's power grid. Other
projects promised but probably further down the road,
include Afghanistan's first railroad, linking Pol-e
Khomri and Kabul with the Soviet border-possibly
extending to Iran and Pakistan-and an expansion of
the Kabul airport.
the Soviets have 5,000 technicians in Af-
ghanistan as part of their economic assistance pro-
gram. F_~
The value, composition, and direction of Afghan trade
have changed dramatically over the past five years.
Recorded exports in FY 1984 were slightly less than
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Figure 5
Afghanistan: Changing Trade Patterns a,
1979-83b
Imports
Exports
a Trade is based on government statistics and does not include smuggling
or trade in areas controlled by insurgents. The increase in exports between
1979 and 1983 is attributable in large part to a near tripling of prices paid
for natural gas by the Soviet Union.
bFscal year ends 20 March.
$700 million compared to about $340 million in FY
1979, with almost all of the increase resulting from
increases in the price of gas paid by the Soviet Union.
The volume of most commodities exported has re-
mained relatively constant or has declined. Recorded
imports approached $950 million in FY 1984 com-
pared to $630 million in FY 1979. Commercial
imports, primarily fuel, manufactured goods, machin-
ery, and food, accounted for most of the increase, with
price increases a significant factor. Commodity aid
imports also increased, but project aid imports de-
clined.)
Trade with the Soviet Union has increased signifi-
cantly. Moscow's share of recorded exports rose from
35 percent before the invasion to almost 60 percent in
recent years. The Soviet Union was Afghanistan's
major export market even before the invasion because
it is the only feasible recipient of natural gas exports.
The Soviet share of Afghan imports has more than
doubled since FY 1979 to about 70 percent in the past
few years largely because of increases in food and
capital goods imports.F__-]
Recorded trade with almost all non-Communist coun-
tries has declined. India and Pakistan continue to be
important trading partners, purchasing about 25 to 30
percent of Afghan exports. Japan provides about 10
percent of Afghanistan's commercial imports. Trade
with the United Kingdom and West Germany, while
still important, is about half the value of the preinva-
sion exchange. F__1
Transportation difficulties have played a major role in
the loss of trade with Western markets. Traditionally,
much of the trade with the West transited Pakistan or
was airlifted. The roads to Pakistan are frequently
blocked by the Soviets or the insurgents and are
dangerous. Flights of the state-controlled airline to
Western Europe were suspended in 1981 following a
terrorist incident involving the airline. Transit facili-
ties at the Soviet border, on the other hand, have been
improved, and security is sometimes provided by
Soviet convoys.
Another important factor affecting trade with the
West has been the sharp decline in hard currency aid
from Western governments. Afghanistan has recently
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25X1 asked Western commercial bankers to increase their
lines of credit to finance imports, but these bankers
have been cautious. We believe Western terms would
not be competitive with the Soviets'.
Afghan officials resent some Soviet trading practices.
even pro-Soviet
25X1
25X1
government officials have become upset with Soviet
reneging on contracts. On several occasions the Sovi-
ets have changed the amounts and types of items that
they wish to barter. Kabul has received unusable
items and has been stuck with seasonal goods when
the Soviets refused to accept delivery.
We do not expect the Afghan economy to show real
improvement unless the Soviets and their Afghan
allies put down the insurgency. As long as the insur-
gency continues:
? Transportation will be disrupted.
? The government will be unable to procure agricul-
tural products and collect taxes from the
countryside.
? Industry will face shortages of power, equipment,
raw materials, and labor.
? The country will remain extremely vulnerable to
food shortages caused by unfavorable weather.
? Trade with and aid from the West will be curtailed.
Natural gas will remain the only important viable
government industry, and gas imports will continue as
the only significant economic benefit that Moscow
gets from its involvement in Afghanistan. We believe
the Soviets are committed to defending the gasfields
and pipelines because they recognize the importance
of natural gas to Afghanistan's economic health and
because of their interest in maintaining gas supplies
from Afghanistan.
The Soviets are unlikely to reduce the amount of
economic assistance they provide to the Afghan Gov-
ernment. They still must ensure that sufficient food
and fuel are available to feed the population under its
control and to meet economic and military transporta-
tion needs. We do not believe economic assistance is a
major issue in Soviet policy toward Afghanistan. At
the same time, the economic dependence of the
Afghan regime on Moscow helps keep it under Mos-
cow's thumb.FI
The insurgency receives benefits from a deteriorating
Afghan economy and disruption in government-spon-
sored economic activity:
? The Afghan population becomes more dissatisfied
with the regime in Kabul and its Soviet sponsors,
with more, recruits becoming available for the insur-
gent cause.
? Insurgent morale is bolstered by success in disrupt-
ing the economy.
? The cost to the Soviets of propping up the regime is
increased.
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