TRENDS IN SOVIET COMMERCIAL RELATIONS WITH THE THIRD WORLD

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T00591R000100030002-9
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 43
• Document Creation Date: December 22, 2016
• Document Release Date: April 19, 2011
• Sequence Number: 2
• Publication Date: January 1, 1985
• Content Type: REPORT

Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Directorate of -Seeret-
Intelligence 25X1
Trends in Soviet
Commercial Relations With
the Third World F-1
A Research Paper
Secret
SOV 85-10003X
January 1985
Copy 6 0 7
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Directorate of
Intelligence
Trends in Soviet
Commercial Relations With
the Third World F-1
This paper was prepared by
25X1
of Soviet Analysis, with contributions by
25X1
SOYA, and
25X1
Office of Global Issues.
25X1
Comments and queries are welcome and may be
directed to the Chief, Soviet Economy Division,
SOYA, on
Secret
SOV 85-10003X
January 1985
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Secret
Summary
Information available
as of I September 1984
was used in this report.
the Third World
Trends in Soviet
Commercial Relations With
suppliers of farm products.
The USSR's economic relations with the Third World have been highly
profitable for Moscow, providing an inflow of resources and hard currency
as well as political and strategic advantages that more than compensates
for the costs incurred. While Soviet trade with the less developed countries
(LDCs) has grown rapidly since 1970, it constitutes less than 15 percent of
the USSR's global exports and imports. It remains narrowly focused on a
few commodities and a few countries-mainly those in the strategically
important area from India to Syria, plus Argentina and Brazil, major
exports of civilian and military manufactures.
Unlike Soviet trade with the developed West, which is essentially an
exchange of Soviet.industrial raw materials for technology and agricultural
products, Soviet-LDC trade consists of an exchange of Soviet manufac-
tures-mainly military supplies-for industrial and agricultural raw mate-
rials. The LDCs represent Moscow's only major outlet outside the Bloc for
equivalent.
Soviet military exports are the largest and most dynamic element in the
trade. Using trade data provided by the USSR, we estimate that such
exports have totaled over $9 billion in each of the last two years, an amount
equal to almost 70 percent of total Soviet exports to the LDCs. The
military sales program offers Moscow substantial benefits:
c It is a major tool for establishing a Soviet presence and expanding
influence in the LDCs.
c It provides Moscow with one of the few export opportunities in which
Soviet-manufactured goods are somewhat competitive in price and
quality with Western products.
c After credits and payments reschedulings are netted out, it generates
perhaps $5-6 billion per year in hard currency revenues or their
Even Moscow's modest economic assistance program appears to have been
largely self-sustaining. We judge that in recent years repayment of
principal and interest on earlier credits has for the most part-offset-and in
some years may have even exceeded-new drawings. Furthermore, this
program opens up markets for Soviet equipment in the Third World.n
available, agreeing to a debt rescheduling.
Although the USSR expects cash payments from its richest customers,
especially for arms sales, it uses favorable credit terms (low interest rates
and long repayment periods) to break into new markets and to retain some
old ones. Moscow also has been flexible when necessary, accepting
payment in commodities such as oil or, when no other alternative is
Secret
SOV 85-10003X
January 1985
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 . Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Moscow structures its imports from the LDCs to reflect its domestic
requirements:
? Agricultural purchases, which account for more than 50 percent of total
imports from the LDCs, offset harvest shortfalls and improve the quality
of domestic consumption.
? Oil imports, which Moscow has been increasing as partial payment for
arms sales, are reexported to third countries, increasing Moscow's
capability to market more oil for hard currency while meeting the oil
needs of its Communist clients and its domestic economy.
? Natural gas imports similarly allow a marginally more efficient alloca-
tion of domestic supplies within the USSR. F-]
The balance of costs and benefits to Moscow from its trade with the LDCs
ultimately is represented by the resource flows involved and the claims on
resources that may result from the current account surpluses that the
USSR records in this trade. Moscow's cost is the resources embodied in ex-
ports to the LDCs. The opportunity cost of these exports has risen as the
growth of Soviet machine-building capacity has lagged behind the in-
creases in requirements for investment goods, consumer durables, and
military hardware. Increased competition in the world arms market has
also raised this cost by forcing Moscow to offer the LDCs increasingly
sophisticated equipment. This contrasts with Soviet sales policy through
the early 1970s when exports consisted largely of equipment being retired
from Soviet military forces. The resource inflow of Soviet imports only
partially compensates for the resource outflow.
The burden on the USSR of accumulating surpluses depends on LDCs'
ability to cover the surpluses with payments of hard currency and the
character of the LDCs' accumulating debt to the USSR. Much of the
surplus has in fact been covered by the LDCs in hard currency. These
earnings permit Moscow to purchase technologically advanced machinery
and equipment from the developed West, where the USSR traditionally
runs a trade deficit. Most of the remainder of the surplus is covered by net
additions to debt owed to the USSR-over $1 billion annually since the
mid-1970s. This stock of debt, which was valued at $18 billion at the end of
1982, will potentially generate future income to the USSR either in
guaranteed deliveries of commodities important to the Soviet economy or
in cash. A sizable portion (perhaps as much as 50 percent) of the $14 billion
in outstanding military debt, however, is owed by countries that may well
be unable to make scheduled payments such as Ethiopia, South Yemen,
and Mozambique. The USSR has already rescheduled the debt owed by
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Secret
many of these countries, thus increasing the cost of extending credits. Even
without rescheduling, interest earnings for Moscow, at rates of 2 to 4
percent, are probably not sufficient to totally compensate for deferring
payments on its resource transfers to the LDCs.
Moscow's economic ties-especially military trade and aid-have been an
important element in increasing Soviet influence in the LDCs. Much of
this influence has come from supporting regimes with anti-Western, anti-
US stances such as Syria, Libya, Ethiopia, and Nicaragua. To the extent
that the policies adopted by these countries weaken Western influence,
Moscow benefits. In addition, numerous less developed countries have
become dependent on Soviet arms supplies, and this serves to increase
Soviet leverage. Such dependence plays a part in those countries' pro-
Soviet voting patterns in international organizations and the lack of media
attention within those countries to such events as the invasion of Afghani-
stan and the downing of the Korean airliner. Most LDC leaders, however,
are keenly conscious of the need to protect their national sovereignty, and,
when their interests diverge from Soviet interests, Moscow usually has
little influence.
The most tangible noneconomic benefits to Moscow from economic ties
with the LDCs are military. Soviet assistance to LDCs-especially mili-
tary assistance-has helped secure access to a number of military facilities.
These port and air facilities are used in peacetime primarily by Soviet
naval ships and aircraft and by the military transport planes and merchant
ships that deliver military equipment and supplies to client states.
The character of the USSR's economic ties with the non-Communist less
developed countries for the remainder of the 1980s is likely to continue
along the same lines as during the past decade. The Soviet military trade
and aid program will remain the key to Soviet relations with the Third
World. Moscow is likely to remain flexible with regard to financial
arrangements on military sales but will continue to insist on the most
favorable terms feasible. In addition, the USSR will probably continue to
provide increasingly sophisticated equipment to important arms customers
such as Syria, India, Iraq, and Libya to maintain these markets.n
Economic assistance extended on concessionary terms, in our judgment,
may not increase much if at all beyond current levels. The current
problems hampering the growth of the Soviet economy make the leadership
reluctant to increase its assistance to the LDCs. In his plenum speech in
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
June 1983, former General Secretary Yuriy Andropov made specific
reference to the limits of Soviet assistance. Several Soviet clients, including
Angola and Nicaragua, have been advised to seek out Western donors for
the economic assistance requested from Moscow. We believe that the
USSR will continue to favor extending economic aid on concessionary
terms for those projects that will be the most beneficial to the Soviet
economy, primarily by guaranteeing long-term delivery of raw materials.
Commodity credits, grants, and cash loans will probably remain small and
continue to be limited mainly to important client states.
The USSR's ability to expand its economic ties with the LDCs and to
increase its influence through this relationship, in our judgment, will be
hindered by a number of factors. LDC disenchantment with Soviet
economic assistance increased during the 1970s and is likely to continue
throughout the 1980s. LDC recipients of Soviet assistance have criticized
Moscow for the paucity of its assistance, poor quality of equipment and
workmanship, and slow implementation of economic aid agreements.
Countries such as Guinea, Benin, and Congo, once close to the USSR, have
become disillusioned with Moscow's assistance programs and are strength-
ening their Western ties. Even the regimes of Angola and Mozambique,
which owe their very existence to Soviet support in the mid-1970s, are
disappointed in Soviet economic assistance and are seeking help in the
West.
In addition, the generally poor quality of Soviet-manufactured goods
constrains the array of civilian machinery and equipment salable to the
LDCs to those few products that Moscow has already been marketing for
some time. Only the USSR's exports of power equipment are likely to show
continued growth during the decade. Increased Western competition and
LDC financial problems may even hamper further increases in Moscow's
military sales.
We believe, therefore, that real growth in Soviet trade with the LDCs for
the rest of the 1980s will be slow at best and could be stagnant. In our
judgment, Soviet economic relations with these countries will nevertheless
remain profitable politically, economically, and militarily for Moscow, and
no retrenchment of the Soviet position in the LDCs is anticipated.n
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Payments Mechanism
4
Composition of Exports
7
Military Sales
7
The Civilian Component
8
Composition of Imports
9
Financing the Trade
13
Military Assistance
13
The Economic Assistance Program
14
Methods of Payment
15
The Balance of Payments
16
An Economic Perspective
20
A Political-Strategic Perspective
22
Prospects
23
B.
USSR: Selected Clearing Account Arrangements With the LDCs
27
C.
Estimating Military Exports: A Methodological Note
D.
Methodology for Estimating Soviet-LDC Financial Flows and
LDC Debt to the USSR
33
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
1.
USSR: Shares of Trade, Turnover, 1970, 1980, 1983
2.
USSR: Trends in Exports to the LDCs, 1975-81
3.
USSR: Trends in Imports From the LDCs, 1975-81
5.
USSR: Hard and Soft Currency Trade With the LDCs, 1970-83
7
7.
Trends in Estimated Soviet Deliveries of Major Weapon
Systems and Reported Soviet Trade Residuals, 1970-83
29
1.
USSR: Trade With Less Developed Countries, by Region,
1970-83
4
2.
USSR: Exports to Less Developed Countries (f.o.b.), 1970-83
8
3.
USSR: Imports From LDCs (f.o.b.), 1970-83
4.
USSR: Estimated Resource Payback From Aid Programs in
LDCs, as of December 1983
15
5.
USSR: Estimated Balance of Payments With the LDCs, 1970-83
17
7.
USSR: Estimated Hard Currency Balance of Payments With
the LDCs, 1970-82
19
10.
USSR: Distribution by Trade Category of Estimated Military
Exports, 1970-83
31
11.
USSR: Comparison of Estimates of Arms Exports to the
LDCs, 1977-81
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Secret
Trends in Soviet
Commercial Relations With
the Third World F_1
The Soviets structure their activities in the Third
World with a keen eye on economic, political, and
strategic benefits. Moscow's ties with the less devel-
oped countries have become an economic plus for the
USSR by generating sizable export earnings-pri-
marily from military sales. This assessment examines
the structure and magnitude of Soviet economic rela-
tions with the LDCs, presents an accounting of the
costs and benefits of Soviet military and economic
assistance programs, and assesses the outlook for
Soviet economic relations with the LDCs during the
balance of the 1980s.' n
Figure 1
USSR: Shares of Trade
Turnover, 1970, 1980, and 1983
Communist countries
Developed West
Trade Trends
Soviet trade with non-Communist LDCs has expand-
ed rapidly since 1970, paralleling the growth of the
USSR's global trade. Between 1970 and 1983, the
value of Soviet trade with the LDCs increased from
$3.2 billion to $23.5 billion. In spite of the more than
sixfold increase in trade turnover, however, the LDC
share in total Soviet trade has remained relatively
constant (see figure 1). Exports to and imports from
the LDCs accounted for 15 percent and 12 percent of
total Soviet exports and imports, respectively, in 1983;
the comparable shares in 1970 were 15 percent and 11
percent. F-1
' This paper is limited to those transactions directly tied to Soviet
trade-related activities in the less developed countries. It excludes
such activities as the operation of Soviet-owned companies in the
LDCs and tourism. Throughout this assessment the OECD defini-
tion of less developed countries is used to encompass: (1) all
countries in Africa except the Republic of South Africa; (2) all
countries in East Asia except Hong Kong, Japan, Laos, Vietnam,
and Cambodia; (3) all countries in Latin America except Cuba; (4)
all countries in the Middle East and South Asia except Israel and
Turkey. The terms less developed countries, the Third World, and
developing countries are used interchangeably.
1980
144.9 billion US $
1983
172.1 billion US $
In contrast, the share of Soviet trade with the devel-
oped West increased sharply during the same period.
The West's share of total Soviet exports rose from 19
percent to 30 percent, and its share of total imports
rose from 24 percent to 34 percent. These trends
reflect: (1) the priority Moscow attached to boosting
imports of Western technology and equipment in the
early and mid-1970s; (2) the need for large grain
imports in 1979-83; and (3) the sharp rise in the price
of oil shipped to the West. Growth in the share of
Soviet trade with the West has been at the expense of
trade with Communist countries-especially Eastern
Europe-rather than with LDCs. F-1
Growth in Soviet-LDC trade has been quite respect-
able even when examined in volume rather than value
terms (see figures 2 and 3). In fact, according to a
recent Western study, growth in the volume of this
trade has outpaced the growth in Soviet trade with
both the Communist countries and the developed
West. The study estimates that the volume of exports
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Figure 2
USSR: Trends in Exports
to the LDCs, 1975-81
Constant 1975
Us $8
Constant 1975
US $ b
a Assumes 4.5-percent annual growth in prices of Soviet machinery exports
and the residuals.
b Assumes 9-percent annual growth in prices of Soviet machinery exports
and the residuals.
by about 20 percent between 1975 and 1979.
to the LDCs grew at an average rate of 7 to 10
percent annually between 1975 and 1981, while the
volume of total Soviet exports grew at an average
annual rate of 5 percent.' Thus, the LDCs' share in
total Soviet exports probably increased in real terms
although their share in nominal exports remained
basically unchanged. The more rapid increase in the
volume of trade with the LDCs reflects Moscow's
growing role as a major arms supplier to these
countries. The volume of Soviet imports from the
LDCs during this period grew on average about 7
percent per annum. All of the import growth, howev-
er, occurred in 1980 and 1981 as agricultural pur-
chases surged; the volume of imports actually declined
' This estimate assumes that prices of Soviet exports of machinery
and equipment, including military equipment exports hidden in
unspecified trade with the LDCs, grew at an average annual rate of
25X1 between 4.5 and 9 percent in 1975-81. The range is bound at the
upper end by the average annual rate of growth in prices of
Western exports of similar equipment to the LDCs. At the lower
end, it is bound by a 4.8-percent average annual increase in overall
Soviet machinery and equipment export prices between 1970 and
1980 L_ prices grew at an annual
average rate of about 8 percent between 1974 and 1978 but at
prices on Soviet machinery and equip-
ment and unspecified exports to non-Communist countries grew at
an annual average rate of growth of 5 to 6 percent between 1970
and 1982. From this evidence, it appears that the average real rate
of growth of prices for these Soviet exports to the LDCs in 1970-81
Figure 3
USSR: Trends in Imports
From the LDCs, 1975-81
Trade Partners
Soviet economic relations with the LDCs have tradi-
tionally been with countries along the USSR's south-
ern flank-those nations within the strategically im-
portant area from India to Syria (see map). In 1983
more than 60 percent of Soviet exports to the LDCs
(excluding exports not specified by partner country)
went to countries in this region (see table 1). Efforts to
increase its political influence and strategic position
have also motivated the expansion of Moscow's trad-
ing relations in North Africa and selected countries in
Sub-Saharan Africa, particularly Ethiopia and Ango-
la, in recent years.'
The Soviets, however, are not blind to the economic
opportunities presented by trade with resource-rich
countries. For example, the USSR is participating in
numerous projects in Iraq, Iran, Algeria, Morocco,
' Not all of Soviet exports are accounted for by reported exports to
individual countries (see inset "Gaps in Soviet Trade Statistics").
This unreported trade is believed to consist of military exports. If
all of the USSR's military exports-Moscow's major tool for
projecting its influence in the Third World-were included in
country trade, the concentration of Soviet trade within these
regions would be even greater, since over 90 percent of estimated
military exports go to countries in South Asia, the Middle East, and
25X1
25X1
25X1
25X1
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Secret
Figure 4
Concentration of Soviet Trade in the LDCs
and Nigeria that are commercially justifiable. The
fact that growth in the volume of exports to OPEC
member countries has outstripped overall Soviet ex-
port growth to the developing countries since the mid-
1970s is a further indication that the USSR has
eagerly pursued opportunities to earn hard currency
in its trade with the LDCs.
Finally, Soviet trade with South America and the Far
East has also grown rapidly in recent years. In these
$1 billion or over
$500-999 million
$250-499 million
$100-249 million
regions Moscow has focused on lining up imports of
farm products to compensate for domestic shortfalls
in production. Because this trade is closely tied to
Moscow's domestic agricultural requirements, it has
tended to fluctuate widely. After reaching a record of
$5.3 billion in 1981, total imports from these two.
regions fell by almost 40 percent in 1982 as a result of
reduced purchases of and lower prices for agricultural
products. In 1983, imports remained at about the
1982 level.n
25X1
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Table 1
USSR: Trade With Less Developed Countries,
by Region, 1970-83
Total
1,975
1,240
4,598 8
4,089
10,070
7,664
11,525
10,627
13,763
9,127 b
13,940
9,568
South Asia
218
349
677 8
705
1,965
1,915
2,128
2,428
2,176
2,592 b
2,451
1,976
India
136
269
456 8
547
1,326
1,353
1,479
1,854
1,435
2,034
1,717
1,419
Afghanistan
40
41
94
89
381
396
471
440
569
384
541
370
Pakistan
36
31
52
33
1194
78
106
67
99
97
105
91
360
104
996
880
1,702
790
2,512
1,059
2,792
745
1,939
1,678
66
5
381
452
729
398
1,259
5
1,347
25
501
516
186
69
391
317
399
116
569
653
797
260
755
509
Syria
46
19
138
96
258
236
387
350
291
415
277
405
Egypt
363
310
364
623
266
325
339
372
302
417,
345
482
Morocco
36
20
64
57
143
162
176
187
188
81
164
42
Algeria
69
62
156
187
143
96
157
117
183
64
217
16
Ethiopia
1
1
4
3
186
40
189
28
252
18
227
24
Angola
0
0
0
0
106
24
149
11
84
5
230
4
Ghana
11
44
15
64
1
118
NEGL
54
1
51
3
68
Ivory Coast
NEGL
2
18
14
4
188
1
142
1
96
2
67
Malaysia
2
123
1
141
22
298
21
243
22
324
16
334
Thailand
3
1
6
18
13
253
11
434
12
183
10
74
Philippines
0
0
1
17
13
194
1
218
18
111
8
74
Unspecified
792
15
1,891
12
4,763
157
4,935
172
6,424
173
7,053
277
8 Adjusted for grain exported to India on credit, which is not
reflected in Soviet trade statistics.
b Adjusted for repayment of in-kind grain credits by Bangladesh
not included in Soviet trade statistics.
Payments Mechanism for 68 percent of total Soviet exports to the LDCs and
Until the early 1970s most Soviet trade with the less 72 percent of imports. Since then, however, Moscow
developed countries was conducted in nonconvertible has moved steadily away from this soft or barter trade
currencies through bilateral clearing accounts-es- toward settlement in hard currency. The value of hard
sentially a barter arrangement (see inset on clearing currency exports since 1970 has grown at an average
accounts). In 1970 this soft currency trade accounted
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Secret
Official Soviet trade statistics provide the most com-
plete and consistent accounting of Soviet trade with
the developing countries. In comparison, LDC report-
ing on trade with the USSR is often available only
after a lag of several years and generally excludes
important elements of the trade, such as imports of
military equipment and some equipment for economic
assistance programs. Soviet statistics include these
data, at least in aggregate reporting on trade with the
LDCs. They also report imports and exports of
commodities (mainly oil) that are purchased and
resold to third countries by the USSR but which
never enter the USSR. LDC statistics often fail to
account for this sort of trade. Finally, both Soviet
25X1 exports and imports are reported by the USSR on an
f o.b. (free on board) basis, while LDC reporting
varies. Almost all LDCs report their exports on an
f o.b. basis, but imports are reported on either an
f o. b. or c. if. (cost,, insurance, and freight) basis.
While we believe that Soviet statistics are reasonably
accurate, gaps in the disaggregated data limit their
usefulness. Perhaps the most important gap is the
difference between total reported exports to develop-
ing countries and the sum of reported exports to
individual LDCs. This residual, which has accounted
for about 45 percent of total exports in recent years,
is much too large to represent exports to countries
that are not listed in Soviet trade statistics and for
which there are no indications of sizable, nonmilitary
ties with the USSR. The growth in this residual
closely matches the growth in CIA estimates of
military exports based on observed deliveries. Conse-
quently, we believe this residual consists almost
A similar, but much smaller, residual exists for
imports. This residual, which has averaged less than
$200 million annually in the last few years, probably
consists of trade with partners not included in the
trade statistics, such as bauxite and alumina from
Jamaica and Guyana and sugar from the Dominican
Republic. fl
In addition, Soviet reported trade with individual
countries is not always as complete or as disaggregat-
ed as we would like. Besides the overall residual,
about 14 percent of Soviet exports to the developing
countries in recent years is distributed according to
individual country but with no commodity designa-
tion. The country distribution of this residual sug-
gests that most of these exports are also military
related, with over 90 percent of these unspecified
exports going to Moscow's major arms customers.F-
Since 1976, certain trade statistics, including the
volume of fuels exports and grain imports, have not
been reported by the USSR. This reduction of pub-
lished statistics is most evident in Soviet reporting of
imports of fuels and other raw materials from the
LDCs. For the most part, these imports are aggregat-
ed into a general category that includes fuels, miner-
als, and metals. Therefore, other knowledge of the
composition of Soviet imports from individual coun-
tries is needed to define this trade; that is, oil from
Libya and Iraq, bauxite from Guinea, and tin from
Bolivia, Malaysia, and Singapore. n
entirely of military exports.
25X1
annual rate of almost 30 percent; whereas the growth
in soft currency exports has been less than 10 percent.
Soviet hard currency imports from the LDCs grew
twice as fast as soft currency imports (see figure 5).F-
military trade with Syria-to a hard currency basis.
Reflecting Soviet preference, trade agreements signed
since the mid-1970s with Ethiopia, Angola, and Mo-
zambique call for all payments to be transacted in
hard currency, despite Moscow's close relationship
with these countries. (See appendix A for a list of the
Moscow has renegotiated a number of trade agree-
ments with the LDCs, switching to settlement in
convertible currencies. It has also switched portions of
its trade with soft currency trade partners-mainly
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Clearing Accounts:
A Sophisticated Form of Barter
The USSR and its soft currency trading partners
conduct most bilateral trade on the basis of trade and
payments agreements that balance trade annually.
Through these arrangements, Soviet exports and
services are essentially bartered for imports and
services. To assure that trade is roughly balanced,
trade agreements are signed in conjunction with the
payments agreements. The trade agreements specify
commodities to be traded and usually set target
levels for trade. Such arrangements assure each side
25X1 of a certain level of trade and make it easier for the
Soviets to plan trade with these countries. At the
same time, each side also loses a certain degree of the
flexibility permitted by multilateral trade.[-]
Although agreements differ substantially from coun-
try to country, they all provide for special "clearing"
accounts for transactions related to trade and other
activities such as freight insurance, shipping, and
tourism. These accounts are denominated either in
the currency of the LDC trading partner or in a
Western currency, usually pound sterling or US
dollars. Most accounts include a mechanism for
extending "technical" credits up to a small, set
amount to cover imbalances in bilateral payments
due to variations in delivery schedules. The agree-
ments also establish procedures for settling imbal-
ances greater than allowed for by technical credits,
often allowing for settlement in convertible curren-
cies. (See appendix B for details of individual pay-
ments agreements.Jf
Not all of the USSR's trade with its soft currency
trading partners, however, is conducted through
clearing account arrangements. For example, most
military exports to Syria have been settled in hard
currency. In addition, the Soviet agreement with
Bangladesh states that contracts can be concluded-
presumably outside the bilateral trade protocol for
which payment in hard currencies is required. More-
over, the USSR has on occasion arranged specific
barter deals with both its hard and soft currency
partners. India agreed in 1979 to exchange Indian
rice and other agricultural commodities for Soviet
petroleum and petroleum products. Since 1980, Mos-
cow has exchanged fertilizer for Thai corn and rice,
and buses and trams for Colombian coffee. Both
Soviet and LDC efforts to find ways to expand
exports could lead to more of these deals in the
future. F-1
USSR's soft and hard currency trade partners.) Mos-
cow's major soft currency partners are those countries
with which the USSR has established close, long-
lasting, and mutually beneficial economic ties-that
is, India, Afghanistan, Iran, and Syria (civilian trade).
But Egypt has remained an important Soviet LDC
trade partner and continues to trade with the USSR
on a soft currency basis even though its political
25X1 relations with the USSR deteriorated sharply in the
early 1970s. Trade ties with Bangladesh and Paki-
stan, the USSR's other two soft currency trading
partners, have not developed to the same extent.n
The movement toward more trade in hard currency
gives the USSR greater flexibility in structuring its
imports and exports. Moscow is not required to import
unwanted commodities in exchange for fuels and
other materials to balance bilateral trade. Trade with
Algeria and Morocco, for example, shifted from
basically balanced trade to a Soviet surplus as Mos-
cow reduced its imports following the switch to hard
currency trade in 1980 and 1982, respectively. F]
Although the USSR's hard currency trade with the
LDCs requires no bilateral balancing, Moscow has
pointed to the existence of large trade deficits as a
hindrance to expanding trade. In particular, Brazil
and Argentina have been pressed to increase their
purchases of Soviet commodities to reduce the huge
trade surpluses these countries have enjoyed with the
USSR in the early 1980s. In response, Brazil resumed
purchases of Soviet oil in 1982 and, according to US
Embassy sources in Buenos Aires, the Government of
Argentina is pressing government enterprises and
agencies to purchase more from the USSR and
Eastern Europe.
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Secret
Figure 5
USSR: Hard and Soft Currency
Trade With the LCDs, 1970-83
11, Hard currency ^ Soft currency
'Composition of Exports
Although the USSR often touts itself as a supplier of
machinery and equipment to the Third World, most
LDCs find Soviet civilian equipment to be of poor
quality and generally not competitive with that from
the West. Consequently, Soviet exports are dominated
by sales of military equipment and related supplies,
limited types of civilian machinery, and, increasingly,
petroleum and petroleum products (see table 2).F-]
Military Sales. Soviet military exports have consist-
ently been the largest and most dynamic element in
USSR-LDC trade, increasing from slightly over one-
half of total Soviet exports in 1970 to almost.70
percent in 1983 (see figure 6). The value of military
exports (including deliveries of major weapon systems,
spare parts, ordnance, and other support materials)
reached a record of more than $9 billion in 1982 and
remained at about that level in 1983.' The hard
currency portion of these exports totaled an estimated
$7 billion in 1983, ranking second only to oil in Soviet
hard currency exports. Exports of military supplies
accounted for over 20 percent of total hard currency
exports in 1983.
The USSR's military sales program is its major tool
for establishing its presence and expanding Soviet
influence in the LDCs. Moscow is able to provide
assistance quickly to establish and bolster friendly
regimes-as it did in the mid-1970s in Angola, Ethio-
pia, and Mozambique-or to rebuild war-depleted
inventories, as it did recently for Syria. Moscow has
also turned this program into an extremely profitable
enterprise. Since the early 1970s, it has raised its
prices to levels comparable to those of Western equip-
ment and -has mounted an aggressive sales campaign,
offering sophisticated and expensive weapon systems
to its major customers-especially Syria, Libya, and
Iraq. Spurred by increased competition from Western
arms suppliers, the USSR has also demonstrated a
'These estimates are derived from Soviet trade statistics for the
purposes of estimating trade flows. They are generally higher than
official US estimates of the value of military deliveries. The main
difference between these two estimates is the valuation of follow-on
supplies needed to maintain LDC inventories of Soviet military
equipment (appendix C describes the methodology used in calculat-
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86TOO591 R0001 00030002-9
Table 2
USSR: Exports to Less Developed Countries
(f.o.b.), 1970-83
Total
1,975
4,598 a
4,878
7,121
8,267
9,186
10,070
11,525
13,763
13,940
Military b
1,048
2,516
2,942
4,810
5,860
6,126
6,149
7,437
9,358
9,307
Civilian
927
2,082 ,
1,936
2,311
2,407
3,060
3,921
4,088
4,405
4,633
Machinery and equipment
529
884
979
1,133
1,349
1,574
1,617
1,481
1,692
1,893
Fuels
67
468
481
653
571
965
1,490
1,689
1,955
2,113
Of which:
Petroleum and
petroleum products
60
422
446
615
Chemicals
16
118
42
71
78
71
182
287
216
118
Wood and wood products
59
162
153
169
139
143
239
237
199
182
Agricultural commodities
94
165 a
75
74
72
95
114
157
146
118
Other
67
181
157
161
154
158
187
172
138
157
a Adjusted for grain exported to India on credit, which is not
reflected in Soviet trade statistics.
b This item was estimated from the reported export residual in
published Soviet LDC trade figures (that is, the difference between
Soviet reported exports to the LDCs and Soviet reporting on
exports to individual LDCs), unspecified exports to individual
LDCs, and specific commodity exports that are assumed to be
25X1 entirely or partially for military use.
high degree of flexibility in setting prices and arrang-
ing financing to attract and keep customers.' Moscow
has offered increasingly sophisticated equipment, ad-
vanced production technology, and more attractive
terms for sales to the LDCs, especially for important
customers such as Iraq and India. F]
The Civilian Component. Nonmilitary machinery and
equipment constitute an important element of Soviet
exports to the LDCs, accounting for 41 percent of
total civilian exports to these countries in 1983. The
LDC market provides Moscow with its only major
outlet for civilian machinery and equipment exports
outside the Bloc. More than 75 percent of its machin-
ery and equipment exports to non-Communist coun-
tries go to the LDCs (for some categories of equip-
ment, the share is as high as 85 to 100 percent).
Although Soviet machinery and equipment generally
lag behind the technological level of equipment sold
by Western exporters, the USSR is competitive with
the West in some fields, particularly in power engi-
neering and metallurgical equipment. These two cate-
gories jointly account for more than 40 percent of
machinery and equipment exports to the LDCs. n
Moscow, however, is having increasing difficulty ex-
panding its sales of machinery and equipment. Coun-
tries that once relied heavily on the USSR for indus-
trial development (such as India and Iraq) have since
the late 1970s looked increasingly to Western suppli-
ers to modernize their industries. In the case of India,
domestically produced machinery already has largely
replaced Soviet imports. To overcome its lack of
competitive equipment and secure lucrative contracts,
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86TOO591 R0001 00030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Secret
Figure 6
USSR: Exports to the LDCs,
1970-83
the USSR has begun to incorporate Western compo-
nents in project proposals. A further hindrance to the
USSR's efforts to expand its machinery and equip-
ment exports is its unwillingness to provide financial
assistance to cover the domestic costs to the LDCs of
Soviet-assisted projects to which a large share of
Soviet machinery and equipment exports are directed.
Soviet offers of machinery and equipment on credit
have probably become less attractive to the LDCs as
their economic problems have increasingly limited
domestic funds for such projects.
In contrast to machinery and equipment exports,
Soviet sales of petroleum and petroleum products to
the LDCs have increased dramatically, rising from
$60 million in 1970 to $2.1 billion in 1983. Although
much of the increase resulted from rapidly rising
world prices, Moscow in recent years has more than
quadrupled the volume of oil it exports to the LDCs.
Compared with the roughly 40,000 barrels per day
(b/d) the USSR exported prior to 1977, sales in 1983
stood at about 180,000 b/d.
The rapid growth in oil exports largely reflects Mos-
cow's efforts to balance trade with selected countries.
Since the mid-1970s, exports of petroleum to India
have become the driving force behind rapidly rising
bilateral trade, as India was unwilling to accept
greater quantities of Soviet machinery and equip-
ment. Brazil, in an effort to reduce its chronic trade
surplus, also agreed to buy Soviet oil after finding
other potential Soviet offerings unattractive. Accord-
ing to the US Embassy in Buenos Aires, Argentina is-
currently considering importing oil from the USSR.
Moscow also uses its oil exports to support important
client states. About 12 percent of total Soviet petro-
leum exports to the LDCs in 1983 went to Ethiopia
and Afghanistan, for example, and in late 1983 the
USSR began shipping oil to Nicaragua. F-1
The remaining 15 percent of the USSR's civilian
exports to the Third World consist largely of ferrous
metals, chemicals, wood products, agricultural com-
modities, and consumer goods. Only a small quantity
of nonpetroleum raw materials are exported to the
LDCs, partially because of the low demand in the
Third World for such imports. Even if greater LDC
demand for these products existed, however, Soviet
domestic production difficulties would probably pre-
vent the USSR from stepping up the volume of sales
appreciably. These difficulties are perhaps mirrored
in Soviet exports to the LDCs. When inflationary
trends of the 1970s are taken into account, the volume
of exports of these commodities has declined substan-
tially. The rapid expansion of chemical exports, paral-
leling growth in the chemical industry, is the major
exception. F-1
Composition of Imports
Soviet imports from the LDCs are as narrowly fo-
cused as Soviet exports, with the composition and size
of purchases largely reflecting Soviet domestic re-
quirements. Contrary to claims that the USSR offers
the LDCs a growing market for their nontraditional
exports, Soviet imports consist mostly of agricultural
commodities and raw materials (see table 3). Most of
the import growth that has occurred since 1979 is the
result of rapidly rising agricultural purchases. In
1981, imports of agricultural products from the LDCs
rose to a record $6.7 billion even though hard curren-
cy shortages led to a cutback in purchases of luxury
items such as coffee. and cocoa. Improved agricultural
production in the USSR in 1982 combined with lower
commodity prices brought a more than 30-percent
reduction in these imports. F-1
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Table 3
USSR: Imports From LDCs
(f.o.b.), 1970-83
1970
1975
1976
1977
Agricultural products
883
2,366
2,060 a
2,234 a
2,067 a
2,322
4,573
6,665
4,580 a
4,262
Petroleum and petroleum
products
25
552
535
538 b
749 b
925 b
831 b
1,103 b
1,781 b
2,569 b
Machinery and
equipment
3
26
27
32
a Adjusted for repayment of grain credits extended to India and
Bangladesh, which were made in kind.
b Estimated from unspecified Soviet category 2 imports (fuels,
minerals, and metals) from Iraq, Libya, and-in 1981-83-Iran.
Following the January 1980 partial US embargo on
sales of grain and other agricultural products to the
USSR, the LDCs gained a more important role as
suppliers of farm products to the USSR. Argentina
and Brazil benefited the most. Argentina, which
previously provided 10 percent or less of total Soviet
grain imports, supplied 37 percent of these imports in
1981 and 22 percent in 1982. To assure supplies of
key farm commodities, Moscow has entered into long-
term trade agreements (LTAs) with Argentina and
Brazil that extend through 1985 and 1986, respective-
ly. These LTAs guarantee the delivery of specific
quantities of grain, soybeans, soybean meal, and
The LDCs have also supplied the USSR with a
variety of tropical commodities unavailable elsewhere.
Almost all of Soviet domestic requirements for natu-
ral rubber, for example, are met through imports from
Indonesia, Malaysia, and Sri Lanka. Other items
purchased almost exclusively from LDCs include
coffee, cocoa beans, bananas, and spices. In addition,
about 60 percent of the oranges imported, an amount
close to 35 percent of Soviet estimated domestic
consumption, come from the Third World. F_~
c Iranian natural gas exports were estimated from the difference
between total reported Soviet imports from Iran and imports
specified by type.
Although the USSR is largely self-sufficient in the
production of nonagricultural raw materials, imports
of these commodities play an important role in trade
with the LDCs-accounting for 25 percent of total
imports. The bulk of these imports consists of crude
petroleum that the USSR lifts from OPEC countries
for resale to third countries. In the past, most of the
goods the USSR accepted were in repayment'for past
assistance. Increasingly, however, Moscow has had to
accept oil in lieu of hard currency payments for
military purchases. After declining in the late 1970s,
oil imports began increasing in 1981 and surged to a
record of almost 200,000 b/d in 1982 and to 255,000
b/d in 1983 (see inset).
Moscow has also been a steady purchaser of natural
gas piped through Soviet-built pipelines from Afghan-
istan and, before 1980, Iran. Although the USSR is a
net exporter of natural gas, these imports allow a
marginally more cost-efficient distribution of avail-
able supplies to domestic users in bordering areas of
Central Asia and the Caucasus.
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Secret
The USSR both sells and buys petroleum and petro-
leum products in its trade with the Third World.
None of the purchased oil (almost entirely crude) is
used by the USSR domestically. Rather, it is resold
to third countries, allowing Moscow to reduce ship-
ping costs and increase its oil exports beyond domes-
tic capabilities. Much of this oil is exported to other
LDCs, such as India, Morocco, and Cyprus. Petro-
leum product exports, on the other hand, are supplied
to the LDCs from Soviet domestic supplies.
Since 1970, the Soviet oil trade balance vis-a-vis the
LDCs has shifted several times:
After going from a net exporter to a net importer
between 1970 and 1975, Moscow's trade position was
again reversed. Following Soviet agreement in 1982
to accept Libyan oil in lieu of cash for arms sales,
Moscow again became a net oil importer. Increased
purchases from Iran and Iraq together with the
startup of liftingsfrom Saudi Arabia have strength-
ened the USSR's net import position vis-a-vis the
LDCs. The Saudi oil helps Iraq meet part of the
payments due to Moscow for arms purchasesF__-]
ment for its exports.
These increased oil imports have allowed Moscow to
increase its deliveries to other LDCs without having
to draw on its own domestic supplies. In addition, the
USSR has also increased its deliveries to customers
such as Finland and Yugoslavia and has been able to
sell more oil on Western markets for hard currency,
mainly through the spot market. While not all of the
increased oil exports have gone to hard currency
customers, Soviet access to OPEC oil has been the
primary reason the USSR has been able to boost its
hard currency earnings from oil exports at a time of
depressed world oil prices. These oil barter arrange-
ments are, nevertheless, only a second-best solution.
Moscow would much prefer to receive cash in pay-
Soviet imports of nonenergy raw materials from the
LDCs are small-accounting for only 3 percent of
total imports. Moscow does, however, rely on imports
for a portion of its domestic needs for some resources.
Imports of bauxite (primarily from Guinea) and tin
(from Malaysia, Singapore, and Bolivia) account for
roughly 25 percent and 35 percent, respectively, of
available Soviet supplies. Imports of phosphates,
largely from Morocco, play a minor role in fertilizer
production. An agreement between the USSR and
Morocco for the development of Moroccan phosphates
could, however, increase their importance in the Sovi-
et fertilizer industry. Preliminary work is already
under way.
Approximately 12 percent of Moscow's imports from
the developing countries consist of manufactured
commodities, almost all of which come from its soft
currency trade partners. Textiles represent almost
half of the value of these imports and are supplied
mainly by India and Egypt. Although imports of
machinery and equipment have grown rapidly since
1975, the value remains small-only $193 million in
1983. These imports have come almost exclusively
from India, which supplies a variety of equipment
based partly on Soviet technology. F-]
In the past the USSR did not regard the more
industrialized LDCs such as Brazil, Mexico, and
Singapore as a source of Western-manufactured com-
modities, particularly machinery and equipment, but
the Soviets have shown increased interest in such
based on West German technology are being used on
the Siberia-to-Western Europe pipeline. The Soviets
have also expressed interest in Mexican oil technology
and in early 1984 agreed to purchase Mexican speci-
ality steels for the oil industry. It is not likely,
however, that such interest will soon translate into
either sizable or sustained purchases, given traditional
Soviet preference for dealing with established firms in
25X1
25X1
25X1
25X1
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
the industrialized West, its penchant for state-of-the-
art technology, and the aftersales services that only
the larger firms in the developed West can provide.
Service Transactions
To support its commodity trade with the LDCs and
increase foreign exchange earnings, the USSR pro-
vides a broad range of services, including military and
civilian technical assistance, participation in joint
ventures, and shipping. From Moscow's perspective,
the technical services are probably the most impor-
tant, both for the hard currency they earn and as an
instrument to expand influence in the Third World.
Over the past few years, these services are estimated
to have earned Moscow at least $300 million annual-
25X1 ly, over 90 percent of which is in hard currency.
During the past decade, the USSR has sharply in-
creased the number of technical personnel stationed in
the LDCs. Civilian technical services are the fastest
growing support operation. We estimate that the
number of Soviet economic personnel in the non-
Communist LDCs has increased from 10,000 in 1970
to more than 40,000 in 1983. Most of these techni-
cians work on Soviet construction projects, such as
steel mills and oil development projects. In addition, a
relatively small number of Soviet personnel serve as
doctors, teachers, and advisers on economic matters.
interpreters, and other less senior personnel.
doctors and teachers provided free, the Soviets charge
heavily for these services-over $50,000 a year for a
project manager and nearly as much for geologists,
except for a few
25X1 The Soviet military technical presence has also grown
rapidly. In 1983 an estimated 17,525 Soviet military
technicians were stationed in the LDCs, compared
with an annual average of 7,500 during 1970-75. This
program focuses primarily on advisory and training
functions in Africa and the Middle East. In a number
of countries-mainly Iraq, Angola, Ethiopia, Libya,
and Syria-the Soviets have played a key role in
improving military capabilities through a pervasive
presence that sometimes reaches far down into the
military ranks. Moreover, the increasing sophistica-
tion of exported Soviet military systems has increased
the need for Soviet-performed maintenance in the
host LDC as well as in the USSR. For instance,
periodic aircraft engine overhauls in the USSR have
become a standard procedure for most Soviet clients.
Charges for this kind of maintenance can be high,
with concessions usually made only for Moscow's
poorest clients. annual
salaries can run as high as $30,000 per Soviet techni-
cian depending on rank and the types of services to be
performed, with the average rate about half this
amount.
Closely related to the technical assistance program is
Moscow's participation in projects with Western
firms. According to a Soviet publication, the USSR
State Committee for External Economic Relations
cooperates with more than 200 firms in more than 25
Western countries. Most of this cooperation takes the
form of subcontracts awarded to Western firms, but it
also includes Soviet participation in international
consortiums. These forms of cooperation extend to
many of the major Soviet commercial undertakings in
the LDCs that have been launched since the mid-
1970s, including power plants in Iran and Iraq;
metallurgical plants in India, Iran, and Pakistan; oil-
and gas-producing facilities in Iraq and Afghanistan;
oil and gas pipelines in Libya, Nigeria, and Algeria;
and grain elevators in Iran. A Brazilian construction
firm, for example, will cooperate with a Soviet foreign
trade organization on the construction of a dam and
hydropower station in Angola.
Finally, the USSR gains considerable revenue from
shipping services provided to the LDCs. It maintains a
large merchant marine to support its overseas trade.
Moscow prefers to use Soviet ships to transport its
exports and imports, particularly in its trade with the
LDCs. In this way, it can maximize its earnings from
its exports through additional charges for freight and
insurance and reduce its foreign exchange expendi-
tures on imports. Only in its trade with India is the
USSR obligated to use Indian ships for a specified
portion of trade. In addition, the USSR must charter
additional ships from the international freight market
to transport some imports from the LDCs, such as
Argentine grain.
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Secret
25X1
in advance.
The USSR's financial support for its trade with the
LDCs can best be described as realistic. It offers
terms-especially on sales of military equipment-
tailored both to the country's ability to pay and to its
dependence on the USSR for supplies. Attractive
financial terms (low interest rates and long repayment
terms) have been used more to break into new markets
and retain some old ones than to provide generous
economic assistance. All credit offers are tied to
purchases of Soviet equipment and services. For ac-
companying spares, technical services, and other sup-
port elements, Moscow generally demands cash, often
been reluctant to sell to them.
Military Assistance
Before 1973, the USSR's military exports were fi-
nanced almost entirely with long-term credits of at
least 10 years' duration with low interest rates of 2
percent. In addition, most of the equipment sold was
discounted heavily-often by 50 percent or more from
the list price. Following the 1973 oil embargo and the
ensuing oil price increases, the concessionary elements
were reduced sharply. By the late 1970s, price dis-
counts had largely disappeared from Moscow's mili-
tary export program, and today they are reserved for
the USSR's closest and poorest clients. In addition,
since several of its major customers are OPEC mem-
bers or, in the case of Syria, have had access to
sufficient OPEC funds through the Baghdad Accords,
the USSR has had little incentive to offer credits and
in fact has often insisted on downpayments of 25 to 50
percent.' For countries like Libya, Iraq, and Syria-
where, until recently, cost has not been an obstacle-
Moscow's major selling point is its willingness to
provide sophisticated weapon systems on a timely
basis that Western arms exporters generally have
Moscow probably does not expect to conclude military
sales agreements with its poorer customers without
offering concessionary credits. Generally, the Soviets
offer their clients 10-year credit terms with interest
The Baghdad Accords, signed in November 1978, provide for the
transfer of funds from wealthy Arab states, mainly Saudi Arabia,
Kuwait, and the United Arab Emirates, to countries such as Syria
and Jordan to be used for purchases of militar supplies, as well as
economic development and budgetary support.
rates of 2 to 4 percent and a grace period of up to two
years. These terms, however, can vary considerably,
depending on the country purchasing the equipment
Air Force agreed to purchase Soviet helicopters on 10-
year credits at 5-percent interest. Earlier sales to Peru
included interest rates as low as 2 percent. Even more
generous credit arrangements have been extended to
India and Afghanistan. Under the terms of the Indo-
Soviet military trade agreement of 1980, for example,
credits to India carry 15-year repayment terms at 2-
to 3-percent interest and a two-year grace period.
These easy credit arrangements apparently apply only
to sales of major weapon systems. For follow-on
support and resupply of spares, maintenance, and
ordnance, Moscow usually demands cash in advance
or at the time of delivery. It does not hesitate to
pressure even key client states like Libya, Syria,
Angola, and Mozambique to make the required pay-
ments. According to a US Embassy source in Maputo,
for instance, half of Mozambique's aircraft were
grounded in late 1982 because of a lack of hard
currency to purchase the required spare parts. A
credit agreement with Peru in mid-1983 covering the
supply of spare parts, maintenance equipment, and
ammunition is one of the few exceptions to this policy.
In some cases, Moscow has been willing to adapt to
the financial circumstances of its customers. Afghani-
stan and Ethiopia, in particular, have received dis-
counts of 75 percent and 50 percent, respectively, off
the list prices. These discounts, which represent a
substantial grant element in Soviet military trade
with these clients, are valued at $1.6 billion between
1975 and 1982. Less important customers such as
Congo and Burundi reportedly have also received
discounts of 30 to 50 percent on some purchases.
Moreover, following the Syrian setback in Lebanon in
the summer of 1982, Moscow replaced Syrian losses
on terms that included grants and favorable credits,
25X1
25X1
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
The Economic Assistance Program
A substantial share of Soviet exports of machinery
and equipment-the primary component of Moscow's
economic assistance program-is also financed with
credits. Since 1975 between 35 and 50 percent of
these exports have been sold on credit. Loans to
support exports of other commodities and grants are
small and reserved for the USSR's more important
partners.' Credits are occasionally extended to cover
the costs of Soviet technical services as well. This
funding is usually covered by the extension of Soviet
state credits, the basis for which is established in
state-to-state agreements. These credits generally car-
ry concessional terms of 10 to 12 years at 2- to 3-
percent interest, with a grace period of one to three
years. Some of the larger projects, however, have
carried 12- to 15-year repayment terms.'
Although the terms cited above are typical for Soviet
commercial credits, Soviet trade officials have in-
creasingly been offering, and successfully negotiating,
As is the case with military credits, the most generous
terms have gone to Afghanistan, which has received
25X1 economic credits ranging up to 30 years with grace
periods of up to eight years. India has also received
This easing of terms demonstrates Mos-
with Western competition.
cow's ability to adjust the terms of its credits to deal
The USSR has increasingly supplemented its state
credits with less generous credits negotiated between
' Between 1970 and 1982, commodity credits amounted to an
estimated $700 million, or only about 4 percent of total economic
Soviet foreign trade organizations and public and
private enterprises in the LDCs, reflecting a growing
commercial orientation of Soviet trade with the Third
World. To facilitate these arrangements, Moscow has
signed agreements with a number of LDC govern-
ments, including those of Argentina, Brazil, Peru,
Bolivia, Colombia, India, and Mexico. Generally,
these agreements set credit terms of up to 10 years for
repayment at 4.5-percent interest for state organiza-
tions and 5-percent interest for private organizations
with a 15-percent downpayment.9 These types of
credits have been used extensively in the sale of power
equipment to several South American countries. The
largest sale made under such terms was for the
Ajaokuta Steel Mill in Nigeria.
terms at even higher interest rates. Moscow would
like to obtain a rate of return on the credits it offers
that is more in line with prevailing commercial inter-
About 5 percent of Soviet aid extended between 1970
and 1982 consists of grants. Of the almost $900
million of grant aid extended since 1970, approxi-
mately 70 percent has gone to Afghanistan, in the
form of deliveries of food and other consumer goods,
8 The OECD definition of "concessionality" is used here. It includes
credits with a minimum 25-percent grant element based on interest
rates and length of repayment and grace period. For example, a
loan with repayment of 12 years at 2-percent interest with a three-
year grace period would be concessional, while a 10- ear credit at
4-percent interest and no grace period would not.
25X1
25X1
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Secret
Table 4
USSR: Estimated Resource Payback
From Aid Programs in LDCs, as of December 1983
Soviet Aid Extended
(million US $)
Annual Payback
Algeria
315
Pig iron
100 to 200
Egypt
230
Rolled steel
100
India
1,400
Pig iron
300
Steel ingots
1,000
200
70
a Indicates maximum amounts available under agreements. Items
in italics indicate amount expected upon completion of plants.
grain.
and to Ethiopia, mostly in the form of discounts on the
price of Soviet oil since 1979. The remaining grant aid
is distributed among numerous LDCs, mostly in
Africa. Most of this aid consists of modest food
grants, generally 2,000- to 5,000-ton donations of
Methods of Payment
The methods to be used by LDCs in settling their
financial obligations to the USSR are either specified
in contracts or based on general trade and payment
agreements between the USSR and its LDC trading
partner. Most payments are in the form of straight
cash transfers-either of hard currencies or, in the
case of Moscow's soft currency partners, nonconvert-
ible currencies through the clearing account. A num-
ber of compensation agreements, however, call for
repayment of Soviet assistance in output from the
project (see table 4).
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Even though Moscow takes a tough stance with
regard to cash payments, it has been willing to accept
commodities when necessary to avoid long payment
Moscow expects prompt payment for all transactions.
When obligations are not met, it has on occasion
resorted to pressure to elicit the required payments.
For example, the pace of Soviet deliveries of military
25X1 equipment to Libya slowed in early 1982 at a time
when Libya was in arrears.
delays or debt rescheduling.
delayed payments in cash.'?
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Soviet acceptance of OPEC oil
to cover the financial obligations of both Libya and
Iraq has already been noted. These arrangements
require Moscow to market these additional oil imports
to generate the revenues it would have otherwise
received directly. Nevertheless, given the financial
constraints faced by these countries because of a soft
oil market and, in Iraq's case, its prolonged war with
Iran, the USSR undoubtedly prefers oil deliveries to
For those countries that are unable to meet scheduled
debt repayments and do not have products to offer in
lieu of cash payments, the USSR has generally been
willing to reschedule the debt, but usually only after
protracted negotiations. As the poorer LDCs have run
into increasing problems in servicing their internation-
al debt in recent years, Moscow has been obliged to
restructure debt payments for a number of countries,
including Peru, Ethiopia, Madagascar, and Tanzania.
With several other impoverished countries facing
substantial increases in their debt servicing commit-
25X1 ments to the USSR in the near future, new reschedul-
ing agreements are likely.
The Balance of Payments
To analyze the USSR's economic relations with the
LDCs as a whole, we have constructed a Soviet
balance of payments with the LDCs that pulls togeth-
er the separate elements of Soviet trade and credit
relations. Trends in the current account balance re-
flect a growing Soviet surplus with the LDCs, with
large but fluctuating agricultural imports only tempo-
rarily stemming this trend-in 1975-76 and again in
1980-81 (see table 5). Meanwhile, credits have been
financing a smaller share of total Soviet exports, at
least through 1979. Moreover, throughout most of the
1970s and into the 1980s, repayments have offset
more than half of credits drawn, thereby substantially
reducing the capital account balance. Because of
these trends, the net Soviet balance in its trade with
the Third World has grown rapidly since the mid-
1970s, reaching a peak of over $5 billion in 1979.
Even as imports of agricultural commodities grew in
1979-81, the net balance remained high. This net
balance translates into sizable net earnings for Mos-
cow in its LDC trade."
Earnings from military sales are largely responsible
for the favorable Soviet trade position. According to
our calculations, the USSR has been earning $6-8
billion annually in recent years from its military sales
program alone (see table 6). Even Moscow's modest
economic assistance program appears to have been
largely self-sustaining in recent years. We judge that
since 1970 repayment of principal and interest on
earlier-credits has for the most part offset-and in
some years may have even exceeded-new drawings.
With outstanding LDC debts to the USSR at the
beginning of 1983 estimated at almost $18 billion-
including an estimated $11 billion owed by hard
currency trading partners-the LDC repayment obli-
gation will remain considerable through 1990. As
noted above, some countries will probably have to
reschedule their repayments.
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Secret
Table 5
USSR: Estimated Balance of Payments
With the LDCs, 1970-82
Military
1,048
2,516
2,942
4,810
5,860
6,126
6,149
7,437
9,358
Imports (f.o.b.)
-1,240
-4,089
-3,657
-4,096
-4,185
-4,743
-7,664
-10,627
-9,127
Capital account balance
-645
-690
-740
-1,190
-1,200
-420
-1,070
-1,085
-2,845
Credit drawings
-1,165
-1,750
-1,930
-2,620
-2,665
-1,890
-2,605
-2,755
-4,660
Military
-830
-1,305
-1,520
-2,125
-2,220
-1,320
-2,035
-2,085
-3,805
Economic
-335
-445
-410
-495
-445
-570
-570
-670
-855
Repayments
520
1,060
1,190
1,430
1,465
1,470
1,535
1,670
1,815
Military
300
715
820
940
945
1,060
1,115
1,225
1,350
Economic
220
345
370
490
520
410
420
445
465
Net balance a
350
374
1,131
2,745
3,942
5,218
2,496
1,013
3,351
Hard currency
50
6
479
2,434
3,009
4,043
1,635
846
2,743
Outstanding debt
4,970
9,270
10,010
11,140
12,295
12,715
13,785
14,875
17,715
Military
2,530
6,345
7,045
8,230
9,505
9,765
10,685
11,545
14,000
Economicb
2,440
2,925
2,965
2,910
2,790
2,950
3,100
3,330
3,715
? The net balance includes both net Soviet earnings and errors and
omissions in the methodology. The net hard currency balance is
probably a minimum value with the net soft currency balance
including transactions settled in hard currency as well as most of
the errors and omissions.
b The value of economic debt has been adjusted to reflect price
differences between the value of grain credits extended to India and
Bangladesh and the repayment of these credits made in kind.
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Table 6
USSR: Estimated Earnings
From Military Sales, 1970-82
Military exports (c.i.f.) a
1,153
2,768
3,235
5,291
6,446
6,739
6,764
8,181
10,294
Credits extended
-830
-1,305
-1,520
-2,125
-2,220
-1,320
-2,035
-2,085
-3,805
345
835
950
1,090
1,085
1,215
1,275
1,420
1,545
300
715
820
940
945
1,060
1,115
1,225
1,350
45
120
130
150
140
155
160
195
195
Net earnings
668
2,298
2,666
4,256
5,311
6,634
6,004
7,516
8,034
Hard Currency
177
1,459
1,710
3,353
4,261
5,508
4,870
5,990
6,223
Soft currency
491
839
956
903
1,050
1,126
1,134
1,526
1,811
a Converted from the f.o.b. value estimated from Soviet statistics to
a c.i.f. value using a UN standard coefficient of 10 percent.
The Basic Balance-of-
Payments Items a
The trade balance is calculated from reported Soviet
exports to and imports from the LDCs, including
trade not specified by partner country.
The shipping estimate represents net Soviet earnings
from the shipping and insurance services the USSR
provides. The value of freight and insurance charges
was derived from a UN standard coefficient of 10
percent of thef o.b. value of trade and the assumption
that all the USSR's exports to, but only half of its
imports from, the LDCs are transported on Soviet
ships.
Estimated earnings from technical services are based
on average reported charges, applied to all LDCs
required to reimburse Moscow for services rendered.
Interest earnings are based on estimated outstanding
debt owed by the LDCs to the USSR with assumed
average interest rates of 2.5 to 3 percent.
Credit drawings by the LDCs are estimated from
Soviet exports to individual LDCs, including estimat-
ed military exports, on the basis of available infor-
mation on military and economic assistance pro-
grams
Repayments are calculated by assuming standard
repayment terms of 10 years beginning one year after
delivery with adjustments made on repayment of
credits where different terms are known to exist or a
rescheduling of repayments has occurred. We have
also estimated re ayments on credits drawn prior to
1970.
Debt owed by the LDCs to the USSR is estimated by
adding annual net credit drawing (gross drawings less
repayments of principal) to outstanding debt at the
end of the previous year, beginning with an initial
stock of debt of about $4 billion at the end of 1969.
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Secret
Table 7
USSR: Estimated Hard Currency
Balance of Payments With the LDCs, 1970-82
Capital account balance
-80
-715
-750
-770
-1,115
-325
-910
-865
-2,150
Credit drawings
-185
-1,090
-1,230
-1,360
-1,760
1,050
-1,750
-1,810
-3,195
Military
-170
-1,010
-1,160
-1,275
-1,640
-890
-1,530
-1,440
-2,665
We have assumed that a larger share of Soviet earnings from
shipping comes from hard currency trade because the distance from
the USSR to its hard currency partners is greater than the distance
to its soft currency partners. In addition, a larger share'of hard
currency trade (both exports and imports) probably is carried on
Soviet ships.
The general trends that appear in overall Soviet-LDC
trade also apply to hard currency trade with the
LDCs (see table 7). This trade has provided the USSR
with average annual net earnings of $2.5 billion since
1976. We estimate that military sales alone now
generate $5-6 billion of hard currency for Moscow
annually. The estimated $11 billion in outstanding
hard currency debt owed by the LDCs to the USSR
represents a stream of future income for Moscow,
assuming that it will be paid.F__-]
Because data for most of the line items are sparse, we
have had to estimate most of the entries in our
balance-of-payments tables (see inset for definitions of
b The hard currency debt estimates are adjusted to include debt
accumulated by hard currency LDC partners prior to switching
from soft currency payment arrangements.
terms). These estimates are based on Soviet trade
statistics and available information on the financial
aspects of Soviet-LDC trade. Because of considerable
uncertainty in the estimating procedure, however,
these estimates should not be interpreted as precise
values for the various financial transactions. For
example, if we had assumed that in cases where the
actual payment terms are not known, larger amounts
of credits were extended, more lenient repayment
terms (12 years instead of 10) granted, and a greater
share of repayments was not being made due to LDC
financial problems, our estimate of net Soviet earn-
ings would be reduced by $300-500 million annually
in the last five years.
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
the USSR received a minimum of
$6 billion from the LDCs in 1982, an amount equal to
about 70 percent of our estimate of Soviet earnings
25X1 from military sales and economic assistance pro-
grams. Inasmuch as these sources do not provide
complete coverage of LDC payments to the USSR
and exclude repayments of economic credits made in
commodities, they suggest that our estimates of Soviet
earnings from their LDC trade are reasonably accu-
rate
included in the soft currency trade account.
Perhaps the area of greatest uncertainty is our calcu-
lation of hard and soft currency trade and payments.
The large Soviet soft currency balance that our
balance-of-payments methodology generates is unex-
pected, since theoretically Moscow's trade and pay-
ments with its soft currency partners should be in
rough balance. In addition to capturing errors in the
methodology and transactions not included in our
calculation such as tourism and expenses of diplomat-
ic missions, the soft currency trade balance probably
includes some trade that is actually settled in hard
currency. The Soviet trade balances with Syria and
Iran (at least since the cessation of natural gas
deliveries in 1980) have generally been in surplus and
account for much of the discrepancy. At least some of
this trade has likely been settled in hard currency.
Our knowledge of how the clearing accounts actually
operate and what other errors and omissions are
captured in the overall payments balance is insuffi-
cient to estimate the level of hard currency.trade
An Economic Perspective
The balance of costs and benefits to Moscow from its
trade with the LDCs ultimately is represented by the
resource flows involved and the claims on resources
that may result from the current account surpluses
the USSR records in this trade. The USSR engages in
foreign trade to obtain goods and services that it could
not produce at all domestically, or to supplement
domestic production to help satisfy industry and
consumer demands. We estimate that the volume of
Soviet imports from the LDCs grew at an average
annual rate of 7 percent between 1975 and 1981, or
roughly the same rate as total Soviet imports. Unlike
other Soviet imports, however, purchases from the
LDCs fluctuated sharply from year to year. Since
peaking in 1981, these imports have declined some-
what.
Imports from the LDCs have helped to satisfy impor-
tant Soviet domestic requirements or, in the case of
oil, provided a readily marketable commodity for
reexport. Agricultural imports from the LDCs, for
example, help Moscow to maintain per capita con-
sumption during periods of harvest shortfalls, and
imports of tropical products improve the quality of the
Soviet diet by increasing the variety of foods avail-
able. The importance to Moscow of agricultural trade
with the Third World was probably given a boost by
the 1980 US partial embargo, which made the LDCs
a logical alternative supplier for the USSR. In addi-
tion, some of the imports, such as rubber, coffee, and
cocoa, cannot be produced at all in the USSR, or only
at very high cost.
The cost to the USSR of these imports from the
LDCs is the volume of Soviet exports to these coun-
tries. The resources embodied in those exports cannot
be used in the production of goods for the domestic
economy. In real terms, Soviet exports to LDCs have
been increasing at an annual rate of about 7 to 10
percent since the mid-1970s, at least as.fast as-and
perhaps somewhat faster than-Soviet imports from
the LDCs.
Military exports have dominated Soviet exports to
LDCs. Until the early 1970s, much of the equipment
that the USSR sold to LDCs consisted of used items
being retired from Soviet military forces. The cost to
Moscow was represented by the resources necessary to
overhaul, adapt, and ship the arms. Since then,
however, the competition in the world arms market
has led the Soviets to export mostly new equipment..
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Secret
In recent years sales have included sophisticated
equipment that only recently had been introduced into
the USSR's military forces. The advanced air defense
system delivered to Syria and the MIG-29s promised
to India, for example, have not been fully integrated
sharp relief.
into the Warsaw Pact forces.
The opportunity cost to the USSR of these exports
has also risen as the growth of Soviet machine-
building capacity has lagged behind the increase in
requirements for investment goods, consumer dura-
bles, and military hardware. With the growth rate of
military procurement for its own forces slowing down
since 1976, the continued growth in exports of mili-
tary hardware probably was thrown into especially
Soviet exports of civilian manufactures have centered
on power and metallurgical equipment. In this area,
production facilities are sufficient to meet, for the
most part, both domestic investment and export com-
mitments. In addition, the USSR produces basic,
unsophisticated equipment, particularly metallurgical
equipment, which is better suited to the needs of most
LDCs than more sophisticated Western equipment.
Although the domestic costs of oil extraction have
been increasing, during much of the period rising
world market prices for petroleum made oil exports
attractive. More recently, these exports to the LDCs
have been more than offset by oil imports from other
LDCs. The volume of most other exports has been
small, and when domestic production problems have
arisen in some export categories the volume of trade
has been cut back.
basis $1-1.5 billion annually in the last several years
from shipping, technical services, and interest pay-
ments. Finally, the costs to the USSR must take into
account the grant aid to LDCs, which does not appear
in the trade statistics. During 1970-82, the value of
exports furnished on a grant basis amounted to nearly
$4 billion, of which $3 billion was military grant aid
and $1 billion was economic aid. The value of this aid
(which includes price discounts as well as outright
grants) has increased sharply since 1979 after declin-
ing in the early 1970s, reflecting increased Soviet
assistance to a few clients, primarily Ethiopia and
Afghanistan (see table 8).
The burden on the USSR of these accumulating
current account surpluses depends on (1) LDC ability
to cover the surpluses with payments of hard curren-
cy, and (2) the character of the accumulating debt of
the LDCs to the USSR. Much of the Soviet surplus
has in fact been covered by the LDCs in hard
currency. By our estimates at least 40 percent of the
surplus in recent years has been paid for in hard
currency. (In the late 1970s, before imports surged,
the hard currency share was as high as 60 to 70
percent.) These earnings permit Moscow to purchase
machinery and equipment and other products from
the developed West, where the USSR generally runs a
trade deficit. When such purchases embody technol-
ogy the Soviets cannot match domestically, Moscow
gains from the trade.
Most of the remainder of the surplus is covered by net
additions to LDC debt owed to the USSR-over $1
billion annually since the mid-1970s. This stock of
debt, which was valued at almost $18 billion at the
end of 1982, will potentially generate future income to
the USSR either in guaranteed deliveries of commod-
ities important to the Soviet economy or in.cash. At
interest rates of 2 to 4 percent, however, the interest
earnings for Moscow are probably not sufficient to
totally compensate for deferring payment on its re-
level of well over $4 billion.
The USSR has consistently generated a sizable export
surplus in its dealings with LDCs, both in current
prices and in constant prices. This surplus, which
tended to rise through the 1970s in line with the
trends in imports and exports, represents a net outflow
of resources from the USSR to the developing coun-
tries. As Soviet imports of agricultural commodities
rose, the surplus declined to less than $1 billion in
1981, compared with $4 billion in the late 1970s. In
1982 and 1983, however, the surplus returned to a
In addition to the trends in commodity trade, we
estimate that the USSR has been earning on a net
More important, a sizable portion (perhaps as much as
50 percent) of the $14 billion in outstanding military
debt is owed by countries that may well be unable to
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Table 8
USSR: Estimated Grant
Aid to the LDCs, 1970-82
make scheduled repayments-for example, Ethiopia,
South Yemen, North Yemen, Tanzania, and Mozam-
bique. The USSR has already rescheduled the debt
owed by many of these countries, thus increasing the
cost of extending credits. To increase its chances of
being repaid, the USSR. has been willing to accept
commodities in lieu of cash. For example, as part of
its rescheduling agreement with Peru, the USSR
agreed to accept deliveries in partial payment. LDC
repayment of the $4 billion in economic debt owed to
the USSR will not run into the same difficulty
because most of the debt is owed by countries such as
Iraq, Iran, Syria, and India, which are economically
25X1 more sound than Moscow's military debtors, and
because repayment is often tied to the delivery of
commodities produced in Soviet-built enterprises. F_
A Political-Strategic Perspective
Because Moscow's motives for trade with the LDCs
have a political and military as well as an economic
basis, the value to the USSR of its economic relations
with these countries should not be measured by
economic criteria alone (see inset for LDC motives for
trading with the USSR). Viable economic ties with
the LDCs enhance Moscow's status as a superpower.
In international forums, such as the UN Conference
on Trade and Development (UNCTAD), the USSR
and its allies emphasize the expanding nature of
"socialist" trade with the developing countries and the
importance of socialist aid. An active economic assis-
tance program, although small and less concessionary
than Western aid, further enhances the USSR's
international status. F-1
In addition, Moscow's economic ties-especially mili-
tary trade and aid have been the key to increasing
its influence in the LDCs. Much of this influence has
come from supporting regimes with anti-Western,
anti-US stances such as Syria, Libya, Ethiopia, and
Nicaragua. To the extent that the policies adopted by
these countries weaken Western influence, Moscow
benefits. In addition, several less developed countries
have become dependent on Soviet arms supplies, and
this dependence serves to increase Soviet leverage.
Such leverage is often translated, for example, into
pro-Soviet voting patterns in international organiza-
tions and into silence about events such as the inva-
sion of Afghanistan and the downing of the Korean
airliner.
Most LDC leaders, however, are extremely jealous of
their national sovereignty. When their interests di-
verge from Soviet interests, Moscow usually has little
influence. Much of Moscow's influence, moreover,
depends on a continuation of regional instability,
especially in the Middle East and Sub-Saharan Afri-
ca. With Moscow's economic ties narrowly focused on
its military supply relationship, a lessening of regional
tensions could reduce Soviet influence as clients divert
resources to solving economic problems.
The most tangible noneconomic benefits to Moscow
from economic ties in the LDCs are military. Soviet
assistance to LDCs-especially military assistance-
has helped secure access for Soviet forces to a number
of military facilities. These port and air facilities are
used in peacetime primarily by Soviet naval ships and
aircraft and by the military transport planes and
merchant ships that deliver military equipment and
supplies to client states.
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Secret
LDC Motives for Trade
With the USSR
Although trade with the USSR accounts for a very
small share of the total trade of most LDCs, it does
provide a number of benefits to the LDCs. Most
members of the Nonaligned Movement see trade with
the USSR as a means of affirming their nonaligned
status without exposing themselves to potential secu-
rity threats through greater political and military
contacts. Moreover, many newly independent coun-
tries-mainly in Africa-which established leftist,
anti-Western regimes have turned to Moscow, at least
initially, for support and guidance in setting up a
socialist economy.
The USSR is viewed by many LDCs as a large
potential market for their exports that should be
developed to the fullest possible extent. The rapid
increase in Soviet imports since the late 1970s has
fueled expectations of even greater opportunities for
expanding exports to the USSR in some countries.
Argentina and Brazil, which have benefited the most
from increased Soviet imports, are trying to expand
their exports, particularly manufactured commod-
ities, to the USSR. For many firms manufacturing
goods of marginal quality in India, Syria, and Egypt,
the Soviet market is one of the few foreign markets
for their products.
Those countries that have received the most Soviet
aid owe much of their public-sector economic devel-
opment to this assistance. Over the years, the USSR
has been willing to help in the construction of large,
prestigious industrial projects such as steel mills and
power stations that Western donors had deemed
uneconomical. Even more countries have relied on
Moscow for most of their military equipment, and
many have received financial terms and models of a
sophistication that they could not have obtained
elsewhere.
The level of support available at overseas port facili-
ties varies, and the Soviet Navy continues to rely
heavily on its own auxiliaries for maintenance, repair,
and logistic support. These facilities do, however,
assist the Soviets in maintaining a naval presence in
areas like the Mediterranean and Indian Ocean.
Naval reconnaissance aircraft have been stationed-
either continuously or intermittently-in a number of
LDCs, including South Yemen, Ethiopia, Syria, Lib-
ya, and Angola. Their presence has improved Soviet
capabilities to monitor the operations of Western
forces. In addition, access to a variety of ports and
airfields throughout the Third World would put the
Soviets in a better position to support their clients
during future crises.
In countries that have allowed an extensive Soviet
presence-for example, Ethiopia and Angola-access
generally was granted when the governments were
threatened by rebellion or external forces and needed
a strong and capable military patron. Continued
Soviet access generally rests on the continuation of a
relationship that fulfills the needs of the client states,
and the Soviets appear to remain wary of reliance on
facilities from which they may be ejected, as they
were by Egypt between 1972 and 1976 and by
Somalia in 1977.
The character of the USSR's economic ties with the
non-Communist less developed countries for the re-
mainder of the 1980s is likely to be much the same as
during the past decade. The Soviet military trade and
aid program will remain the key to Soviet relations
with the Third World. Moscow is likely to remain
flexible with regard to financial arrangements where
a deal hinges on concessions but will insist on the most
favorable terms feasible on sales to its LDC custom-
ers. In addition, the USSR will probably offer in-
creasingly sophisticated equipment to important arms
customers such as Syria, India, Iraq, and Libya to
maintain these markets.
In its civilian trade with the LDCs, we believe the
USSR will continue to keep the current focus of its
effort on the commercial aspects of its LDC ties,
while the role of economic assistance offered on
concessionary terms will continue to decline in impor-
tance. Soviet firms will probably compete increasingly
against Western firms for lucrative contracts in the
Middle East, North Africa, Latin America, and
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
perhaps the Far East, offering attractive financing
where necessary to improve their chances. Such proj-
ects are likely to include power facilities, pipeline
construction, and metallurgy plants. The financial
terms offered, however, will probably be less conces-
sionary than in the past, with interest rates approach-
ing market levels. We believe that Moscow will
continue to use Western equipment and consortium
arrangements to increase its chances to win lucrative
contracts in the LDCs.
Economic assistance extended on concessionary
terms, in our judgment, may not increase much if at
all beyond current levels. The current problems ham-
pering the growth of the Soviet economy make the
leadership reluctant to increase its assistance to the
LDCs. In his plenum speech in June 1983, former
General Secretary Yuriy Andropov made specific
reference to the limits of Soviet assistance. Several
Soviet clients, including Angola and Nicaragua, have
been advised to seek out Western donors for the
economic assistance requested from Moscow. We
believe that the USSR will continue to favor extend-
ing economic aid on concessionary terms for those
projects that will be the most beneficial to the Soviet
economy, primarily by guaranteeing long-term deliv-
ery of raw materials. Commodity credits, grants, and
cash loans will probably remain small and continue to
be limited mainly to important client states.
seeking assistance in the West.
The USSR's ability to expand its economic ties with
the LDCs and to increase its influence through this
relationship, in our view, will be hindered by a
number of factors. LDC disenchantment with Soviet
economic assistance increased during the 1970s and is
likely to continue throughout the 1980s. LDC recipi-
ents of Soviet assistance have criticized Moscow for
the paucity of its assistance, poor quality of equipment
and workmanship, and slow implementation of eco-
nomic aid agreements. Recent economic and financial
problems in many countries have heightened LDC
dissatisfaction with the Soviet economic aid program.
Socialist-oriented countries such as Guinea, Benin,
and Congo, once close to the USSR, have become
disillusioned with Moscow's assistance programs and
are strengthening their Western ties. Even the Marx-
ist regimes of Angola and Mozambique, which owe
their existence to Soviet support in the mid- 1970s, are
disappointed in Soviet economic assistance and are
In addition, we believe that the USSR's potential for
expanding its exports to the LDCs is limited. The
generally poor quality of Soviet-manufactured goods
constrains the array of civilian machinery and equip-
ment salable to the LDCs to those few products that
Moscow has already been marketing for some time.
Thus, there probably are few new markets to be
tapped. Only the USSR's exports of power equipment
are likely to show much growth during the remainder
of the decade. The financial crisis currently faced by
many LDCs may make them more receptive to Soviet
offers of countertrade as a means of reducing curren-
cy expenditures, but we believe that any increase in
Soviet exports through such arrangements will be
minimal because of LDC reluctance to purchase
substandard Soviet equipment.
Even the prospect of substantial growth in Soviet
military exports is dim. As mentioned earlier, several
of Moscow's major arms clients have sought to diver-
sify their sources of arms. With greater competition
from other arms sellers and the current outlook for a
stagnant or declining Third World arms market, an
even more aggressive sales campaign will be required
to expand sales beyond the present level. Moreover,
financial problems facing.most of the USSR's major
arms customers will further hamper increased sales
and earnings. Under these circumstances Moscow will
probably have to offer better financial terms to LDC
customers as well as agree to reschedule some debt
payments, thus reducing the immediate economic
payoff.
For these reasons, we believe that the volume of
Soviet trade with the LDCs during the rest.of the
1980s will increase slowly at best, and could be
stagnant. The volume of imports, in particular, are
unlikely to exceed the record level reached in 1981
unless substantial Soviet harvest shortfalls force Mos-
cow to increase its agricultural imports. Soviet-LDC
trade will, nevertheless, remain attractive to Moscow,
and no retrenchment of the position in the LDCs is
anticipated. The USSR in its economic relations with
the LDCs for the rest of the decade is likely to strive
to maintain its overall position rather than hope to
improve it."
" Sizable shifts in Soviet economic relations with individual coun-
tries could nonetheless occur, depending on changing political,
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Secret
Appendix A
USSR: Soft and Hard Currency
LDC Trading Partners
Afghanistan Iran
Bangladesh Pakistan
Egypt Syria
India Somalia (inactive)
Countries With Soft Currency Clearing Agreement Canceled Before 1983
Algeria (through 1979)
Cyprus (through 1976)
Ghana (through 1975)
Guinea (at least through 1980)
Mali (through 1977)
Morocco (through 1981)
Sri Lanka (through 1976)
Tunisia (through 1973)
Hard Currency LDC Trade Partners Throughout the 1970s
Africa
Latin America
Asia and Middle
East
Angola
Benin
Burundi
Cameroon
Cape Verde Islands
Central African Republic
Congo
Ethiopia
Equatorial Guinea
Gabon
Gambia, The
Guinea-Bissau
Ivory Coast
Kenya
Liberia
Madagascar
Malawi
Mauritania
Mauritius
Mozambique
Niger
Nigeria
Rwanda
Senegal
Sierra Leone
Sudan
Tanzania
Togo
Uganda
Upper Volta
Zaire
Zambia
Argentina
Bolivia
Brazil
Chile
Colombia
Costa Rica
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Honduras
Jamaica
Mexico
Nicaragua
Panama
Paraguay
Peru
Trinidad and Tobago
Uruguay
Venezuela
Burma
Indonesia
Iraq
Jordan
Kuwait
Lebanon
Macau
Malaysia
Nepal
Philippines
Saudi Arabia
Singapore
Thailand
Yemen, Arab Republic
Yemen, People's Democratic
Republic
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86TOO591 R0001 00030002-9
Secret
Appendix B
USSR: Selected Clearing Account
Arrangements With the LDCs
Country
Currency
of
Account
Amount of
Technical
Credits
Afghanistan
US dollars
2 million
Algeria
US dollars
1.5 million
Bangladesh
British
pounds
None
Egypt
British
pounds
6 million
(raised to 15
million in
1971)
Guinea
US dollars
Set annually
(600,000 in
1961)
India
Indian rupees
No limit set
Iran
US dollars
2 million
Mali
Mali francs
500 million
Morocco
Moroccan
francs
500 million
Method for Settling Other Date of
Imbalances Above Comments Agreement
Set Limits
Annual interest of 2 percent is
charged on amounts over the
technical credit. Creditor can
demand payment at any time.
20 March
1974
Parties should take actions to Replaced by a new agree- 4 November
eliminate the excess within ment that switched to hard 1963
three months. If the excess is currency payments in 1980.
not liquidated in this period, a
mixed commission will be as-
sembled to adopt measures to
liquidate the imbalances.
Any balance at the end of the Specifies that contracts can 31 March
year is to be liquidated in con- require payment in convert- 1972
vertible currencies. ible currencies.
Annual interest rate of 2 per- Replaced an earlier agree- 23 June 1962
cent is charged on amount over ment in which the
technical credit. If the imbal- accounting currency was
ance is not corrected within Egyptian pounds.
three months, payment in con-
vertible currencies can be de-
manded.
Parties have the right to limit or Believed to have been can- 8 September
suspend the granting of import celed as of 1981. 1960
and export licenses until the
imbalance is corrected.
To be settled by purchase of
Indian or Soviet products with-
in 12 months of the end of the
agreement period or through
some other arrangement.
An annual interest rate of 2
percent is charged on the ex-
cess. If the imbalance is not
corrected in three months, the
creditor can request payment in
convertible currencies.
10 December
1980
Creditor has the right to sus- Replaced by an agreement 18 March
pend deliveries. that switched to hard cur- 1961
rency payments in 1978.
Creditor has the right to sus- Replaced by an agreement 19 April 1958
pend deliveries. that switched to hard cur-
rency payments in 1982.
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86TOO591 R0001 00030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
USSR: Selected Clearing Account
Arrangements With the LDCs (continued)
Country
Currency
of
Account
Amount of
Technical
Credits
Pakistan
Pakistani
rupees
None
Somalia
British pound
100,000
(raised to
630,000 in
1968)
Syria
British pound
500,000
Method for Settling Other Date of
Imbalances Above Comments Agreement
Set Limits
Imbalances can be converted
into British pounds or into other
convertible currencies on
demand.
At the end of every six months, Currently believed to be 2 June 1961
half of the imbalance must be inactive.
settled in freely convertible cur-
rencies within one month.
Measures to be taken to elimi- .4 November
nate the imbalances within 1966
three months after which the
creditor can require payment in
British pounds or other convert-
ible currencies.
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Secret
Appendix C
Estimating Military Exports:
A Methodological Note
Estimates of Soviet military exports presented in this
assessment are derived entirely from official Soviet
trade statistics for the purposes of estimating trade
flows. By systematically examining the trade data and
comparing them with the official CIA-DIA estimates
of military deliveries
Figure 7
Trends in Estimated Soviet Deliveries
of Major Weapon Systems and Reported
Soviet Trade Residuals, 1970-83
Billion US $
9
have been able to construct a methodology for esti-
mating Soviet military exports. We believe the esti-
mates produced accurately reflect the level of these
exports valued at the actual sales price; that is,
excluding the grant element due to price discounts."
These estimates more realistically allow for delivery
of follow-on support materials such as spare parts and
ordnance, which the current Intelligence Community
estimates appear to be undervaluing.'
Soviet statistics on trade with the LDCs contain large
Estimated
deliveries
unexplained residual elements, mainly trade not speci-
fied by partner country and, within reported exports
to individual countries, trade not specified by com-
modity. The growth of these residuals closely matches
official Community estimates of the growth of mili-
tary deliveries. About 47 percent of cumulative Soviet
exports to the LDCs between 1975 and 1982 were not
specified by country of destination. Within the trade
reported by country, 13 percent of cumulative exports
had no commodity designation.
In addition, some categories of machinery and equip-
ment have both civilian and military applications.
While the trends in residual exports-both the overall
and country residual-clearly match those of estimat-
ed military deliveries (see figure 7), the relationship
between exports of these dual-purpose categories and
military exports is more difficult to discern. Much of
our examination of Soviet trade data, therefore, fo-
cused on comparing these exports with Community
" In contrast, official Intelligence Community estimates value trade
at the official foreign trade price, thus including any grant element.
In addition, these estimates are on a c.i.f. basis rather than on the
" The current Intelligence Community estimates add on 25 percent
to the value of observed military equipment deliveries to account for
unobserved deliveries of spare parts and other follow-on materials.
Examination of a detailed set of Soviet-LDC contracts indicates
this add-on factor is too low, and research is under way to update
estimates of military deliveries by type of equipment
from 1975 to 1980.
We found that such dual-purpose commodities as
helicopters, cranes, and trucks fit easily into Soviet
trade data. In particular, Soviet-reported exports of
air transport equipment and heavy vehicles are heavi-
ly concentrated among known Soviet arms customers
(see table 9). When allowances are made for variations
of delivery schedules, these exports can account for
most estimated deliveries of trucks and helicopters.
Additional deliveries of military equipment could also
be contained in unspecified exports of machinery and
equipment, but no clear correlation is discernible. In
many instances where these unspecified exports have
been sizable, the importing country either does not
buy Soviet arms or the deliveries can be attributed to
ongoing economic projects.
Although our knowledge of Soviet foreign trade ac-
counting is far from complete, the above findings
suggest that the Soviets follow a definite pattern when
recording military exports. We also know from a large
body of collateral information that, while the Chief
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Table 9
USSR: Possible Trade in Military
Equipment and Supplies, 1982-83
Total
Iraq
Iran
Country
Residual
Air
Transport
Trucks
2,196
570
336
970
134
111
553
0
10
4
217
0
Country
Residual
Air
Transport
Trucks
1,479
608
336
304
60
41
467
0
17
3
275
0
Mozambique 11 1 13 21 27 1
Engineering Directorate (GIU)-a component of the
State Committee for Foreign Economic Relations-is
the organization largely responsible for military sales,
other foreign trade organizations (FTOs), in particular
Avtoeksport and Aviaeksport, are involved in selling
equipment to LDC military establishments. Because
these organizations sell the same or similar equipment
to civilian organizations, they probably do not make
distinctions between the military and civilian compo-
nents of their sales, and thus trade would be reported
on a country-by-country basis. Soviet deliveries of
major military equipment such as tanks, fighters, and
missiles, which are handled through the GIU, appear
to fall entirely outside reported country trade. How
the supply of ordnance and other support materials is
accounted for in the Soviet system is more difficult to
determine. Considering the large country residuals of
some of Moscow's major arms clients, however, it is
possible that much of these exports fall within the
reported country trade
Using the above findings, we have constructed a
methodology that sums up both the overall and
country residuals, all air transport equipment exports,
and half of Soviet exports of heavy vehicles and
related spare parts to come up with what we believe to
be a reasonable estimate of Soviet military exports
(see table 10). Limiting ourselves to these categories
avoids the inclusion of categories that are less clearly
associated with military sales and offsets the inclusion
of some civilian trade that our estimates undoubtedly
capture. In any event, our estimate for cumulative
exports of $28.4 billion in 1975-80 is only $1 billion
less than the maximum amount we believe Soviet
trade data could support
Our findings are supported by a computer model that
derives estimated values for follow-on support based
on maintenance practices and ordnance requirements
of Soviet armed forces, adjusted for individual LDC
rates of usage and operation of equipment inventories.
This methodology substantially increased the allow-
ance for unobserved deliveries of support items from
25 percent of observed deliveries of major weapons
systems to nearly 50 percent. Consequently, much
higher estimates are generated, and these are within 5
percent of the estimates derived from Soviet trade
statistics once adjustments are made for shipping
costs and Soviet grant aid (see table 11).
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Secret
Table 10
USSR: Distribution by Trade Category
of Estimated Military Exports, 1970-83
1970
1,048
792
159
61
36
1971
987
694
164
75
54
1972
1,369
1,066
154'
87
62
1973
2,700
2,140
362
128
70
1977
4,810
3,890
692
110
118
1978
5,860
4,216
1,285
243 a
116
1979
6,126
4,356
1,389 b
279 a
102
1980
6,149
4,763
967
300
119
1981
7,437
4,935
1,912
484
106
1982
9,358
6,424
2,196
570
168
1983
9,307
7,052
1,479
608
168
a Includes an estimated $10 million and $50 million for exports of
air transport equipment to Libya in 1978 and 1979, respectively.
b Excludes an estimated $50 million for oil exports to Ethiopia in
1979.
Table 11
USSR: Comparison of Estimates of Arms
Exports to the LDCs, 1977-81
Trade data estimate
34,867
5,507
7,010
6,977
6,988
8,375
Trade value (c.i.f.)
33,421
5,291
6,446
6,739
6,764
8,181
Grants
1,446
216
564
238
234
194
Estimates derived from Soviet trade data allow for
greater precision on an annual basis than do the.
computer-generated estimates. On a year-to-year ba-
sis these two estimates differed by over $1 billion,
with the computer-generated estimates being both
higher and lower than the amount of trade supported
in the trade data. Such variations are not surprising
given the difficulty in pinpointing the actual delivery
date of military equipment, particularly of the unob-
served follow-on elements. Estimates from Soviet
data, while providing annual estimates for total mili-
tary exports, cannot provide such essential informa-
tion as the level of exports to individual countries and
the types of equipment being delivered. Thus, the two
methodologies complement each other in improving
estimates of Soviet arms.exports.
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Secret
Appendix D
Methodology for Estimating
Soviet-LDC Financial Flows and
LDC Debt to the USSR
Official trade statistics form the starting point for
estimating the USSR's balance of payments with the
non-Communist LDCs. Although the Soviet data are
incomplete in coverage with respect to both partner
and commodity trade, they are the most comprehen-
sive statistics available. From them we have derived
our estimates of Soviet earnings from shipping and
interest payments, credit drawings, repayments, and
outstanding LDC debt to the USSR.
Estimates of financial flows are limited to those
transactions directly relating to Soviet-LDC trade.
Items such as expenditures for upkeep of embassies,
consulates, and official delegations, tourism, port fees,
and earnings from Soviet-owned companies operating
in the Third World-mainly fishing enterprises-are
excluded from our calculations. We have also not
attempted to adjust our estimates to take into account
exchange rate fluctuations, which would affect the
dollar value of debt, repayment, and interest earnings.
Most state credits the USSR has extended for eco-
nomic and military aid have been ruble denominated,
so it is likely that much of the debt is valued in ruble
terms, and repayments are made in a convertible
currency or through a clearing account based on the
ruble exchange rate at the time of the payment.
Moreover, although some credits extended are now
often denominated in convertible currencies, these
credits are not necessarily valued in dollars. Because
the dollar exchange rate vis-a-vis other convertible
currencies and the ruble has fluctuated considerably
in the last 10 years, our estimates of repayments and
debt based on the dollar values of credits drawn are
somewhat distorted. The general trends and magni-
tude of LDC debt and repayment, however, remain
unaffected.
Our estimates of credit drawings from Soviet arms
exports to the LDCs are based on available informa-
tion on the credit arrangements in existence with
individual countries. To estimate these credits we first
distributed our estimates of total military exports by
importing country on the basis of observed military
deliveries. We also assumed that Iraq, Libya, Iran,
and Syria pay for purchases upon delivery. Our
information about financial arrangements between
the USSR and these countries suggest that this has
been generally true, at least in the last several years.15
We have, however, taken into account reported credits
extended to Syria on deliveries made in late 1982.
For military deliveries to other countries, we have
assumed that credits are extended only for purchases
of major weapon systems. Thus our estimates for
military exports are adjusted to exclude deliveries of
spare parts and other follow-on support materials and
downpayments to reach our estimate of credits ex-
tended. These credits are assumed to carry 10-year
repayment terms with payment beginning one year
after delivery, unless information to the contrary is
available, as is the case with India and Ethiopia. We
further assume that all payments are made on time
unless: (1) payments are known to have been resched-
uled or (2) as in the case of Egypt, a unilateral
moratorium has been declared on repayment of a
country's military debt to the USSR. The repayment
schedule also begins with repayment of an estimated
$2 billion in outstanding debt owed to the USSR from
credits drawn prior to 1970.
15 This assumption is probably simplistic, however, because it
ignores any downpayments=nade on purchases to be delivered over
not necessarily match delivery schedules. There is, however, no way
to adjust for such differences between payments and deliveries. In
any event, these differences even out within a short period of time.
25X1
25X1
25X1
25X1
25X1
LJ/~ I
L~JC"I
25X1
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Estimated Flows From
Economic Assistance
Estimates of credit drawings for Soviet economic
assistance to the LDCs were calculated in much the
same manner as military assistance. Because informa-
tion on Soviet economic aid projects is more readily
available, we were able to compare project aid extend-
ed with detailed Soviet reporting of exports to individ-
ual LDCs. A close examination of Soviet trade statis-
tics ensures that estimates of credit drawings by
individual countries reflect Soviet exports of machin-
ery and equipment clearly being provided under spe-
cific aid and credit agreements. We have no way of
capturing additional supplier credits provided by Sovi-
et FTOs on the sale of machinery and equipment not
associated with specific aid agreements, except in a
few instances where reporting is available such as
for India. Consequently, our estimates of credits
drawn probably are low. We do not believe, however,
that the amount of such supplier credits would exceed
$50 million, and, since the terms would be shorter
(between three and eight years for repayment), the
impact on net flows for civilian trade would be
relatively small.
Repayments of economic credits were calculated in
the same manner as repayments of military credits.
Most credits are assumed to carry standard terms of
10 years with repayments beginning one year after
delivery. For some of Moscow's largest aid recipients
such as India, Syria, and Afghanistan, we assumed
somewhat longer average repayment periods-usually
12 years. Because many Soviet aid agreements for
large industrial projects stipulate payments to begin
upon completion of the project, we have extended the
grace periods to two or three years for countries where
most of the aid consists of such large projects. Finally,
we estimated repayments on credits drawn prior to
1970 on the basis of estimated deliveries of economic
aid between 1956 and 1969. With these adjustments
and assumptions, we believe we have been able to
construct a repayments schedule that reflects the
trends in repayments
payments to the USSR could be calculated. Starting
with an estimated debt of about $4.3 billion at the
beginning of 1970, new credits were added and
repayments subtracted from the outstanding debt to
construct annual yearend debt. Interest payments in
any given year were calculated from the midpoint
between the debt at the end of that year and the debt
at the end of the previous year. We assumed an
interest rate of 2.5 percent on most debt, although for
the period since 1980 interest rates on hard currency
debt were increased to 3 percent for economic debt to
take into account the higher interest rates generally
being charged on credits extended to these countries
since the mid-1970s. We further assumed that no
interest was being paid on debt that had been resched-
uled or on the grain credits extended to India and
Bangladesh in the early 1970s, which were repaid in
kindl
To check our estimates of LDC payments to the
USSR, we have examined infor-
mation on LDC financial transactions with Soviet
trade organizations and independent estimates of debt
owed by individual LDCs to the USSR.
financial transactions between the LDCs and the
USSR shows that the LDCs transferred or were
requested to transfer $3.2 billion to the USSR in 1982
(see table 12). The most substantial payments were
made by Moscow's largest arms customers, including
$1.6 billion in payments by Iraq. Only about $200
million -7 percent of the total transactions-were
requested with no payment actually observed. Gener-
ally, these requests were concentrated among those
countries in severe financial straits such as Angola,
Mozambique, and Guinea.
In addition, Moscow received about $1.6 billion in oil
from Libya in lieu of cash payments, mostly for sales
of military goods and services. Moreover, although
only relatively small Syrian transfers of $138 million
were observed, collateral reporting shows that Syria
received substantial funding--about $1.4 billion-
from other Arab countries to cover its military pur-
chases in 1982. Syria may also have diverted some of
Once estimates for credit drawings and repayment
schedules were constructed, LDC debt and interest
25X1
25X1
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Secret
Table 12
USSR: Payments From the LDCs
in 1982
the $575 million in Arab funds designated for eco-
25X1
25X1
Actual
Payments
Requested
Payments
Afghanistan
5,403
5,403
Algeria
445,995
445,504
491
Angola
7,168
44,869
Bangladesh
7,897
7,258
639
Benin
4,127
805
3,322
Equatorial Guinea
245
203
42
Congo
413
413
Egypt
19,322
19,322
Guinea
46,033
46,033
Mali
490
490
India
96,987
96,987
Iran
22,689
22,689
Iraq
1,587,529
1,587,401
Kuwait
123,125
123,125
Libya
362,045
362,045
Mozambique
21,049
386
20,663
42,720
24,007
18,713
Peru
54,657
40,647
14,010
Sudan
1,347
1,347
South Yemen
456
93
363
Syria
138,220
129,316
8,904
Ethiopia
7,418
1,614
5,804
Zambia
18,025
18,025
Cameroon
250
250
Indonesia
30,383
30,383
Nigeria
18,883
1,200
17,683
Jordan
131
131
Morocco
624
624
Nepal
12
12
Nicaragua
8,621
8
8,613
Tanzania
498
498
Yemen Arab Republic
33,240
33,240
Burundi
1,228
1,228
Sao Tome Principe
199
199
Sri Lanka
109
109
Total
3,152,407
2,929,958
222,449
a Letters of credit valued at $144 million were opened during 1982
and may indicate that sizable unobserved payments were made
during the year.
nomic development to military purchases.
Moscow received a
minimum of $6 billion from the LDCs in 1982, an
amount equal to about 70 percent of our estimates of
Soviet earnings from military sales and economic
assistance programs. Inasmuch as these sources do
not provide complete coverage of LDC payments to
the USSR and exclude repayments of economic cred-
its made in commodities, they provide convincing
evidence that our estimates of Soviet earnings from
LDC trade are reasonably accurate.
We also compared our estimates of outstanding debt
owed by the LDCs to the USSR with independent
estimates of debt owed by individual LDCs. The sum
of these estimates, derived from a variety of sources,
indicates that LDC debt was about $9 billion in the
early 1980s. These estimates exclude debt owed by
important Soviet customers, such as military debt
owed by India, South Yemen, and Afghanistan, and
thus reflect only a portion of total LDC debt owed to
the USSR. We estimate that unreported debt owed by
Moscow's major aid recipients could total about $7.5
billion, a figure, which, when combined with the
independent debt estimates for other countries, would
bring this estimate of total debt to within 10 percent
of our estimate.
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
 Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9
Secret
Secret
Sanitized Copy Approved for Release 2011/04/19: CIA-RDP86T00591 R000100030002-9