SINO-SOVIET BLOC ECONOMIC ACTIVITIES IN UNDERDEVELOPED AREAS 1 JULY-31 DECEMBER 1959

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP92B01090R000400010009-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 31
• Document Creation Date: December 19, 2016
• Document Release Date: January 25, 2006
• Sequence Number: 9
• Publication Date: February 9, 1960
• Content Type: REPORT

SECRET Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
ECONOMIC INTELLIGENCE REPORT
SINO-SOVIET BLO CONOMIC ACTIVI ` , E
IN UNDERDEVELOPED AREAS
1 JULY - 3 .. DECEMBER 1959
IC--R14-S8
February 1960
ECONOMIC INT LL.IGENCE COMM I
1PR
Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
 25X1 Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
 Approved For Release 2006/02/07 : CIA-RDP92B01090R000400010009-4
S-E-C-R-E-T
ECONOMIC INTELLIGENCE REPORT
SINO-SOVIET BLOC ECONOMIC ACTIVITIES
IN UNDERDEVELOPED AREAS
1 JULY - 31 DECEMBER 1959
EIC-R14-S8
S-E-C-R-E-T
Approved For Release 2006/02/07 : CIA-RDP92B01090R000400010009-4
 Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
S-E-C-R-E-T
The reports on Sino-Soviet Bloc economic activities in undertiie-
veloped areas in the EIC-R14 series provide periodic summaries and
analytical interpretations of significant developments in the eco-
nomic relations of Sino-Soviet Bloc countries with underdevelopei
countries of the Free World. These developments are reported on a
current, factual basis in the Biweekly Reports in the EIC-WGR-1
series, under the same title.
This report, covering the 6 months from 1 July through 31 December
1959, constitutes the eighth periodic supplement to EIC-R14, the back.-
ground report on Sino-Soviet Bloc Postwar Economic Activities in
Underdeveloped Areas, 5 August 1956, SECRET. The present supplement
relates noteworthy noneconomic activities to the economic operat:Lons
of the Sino-Soviet Bloc in the underdeveloped areas in order to Place
the economic aspects in the perspective of the over-all program'; and
objectives of the Bloc in these regions. This report was prepared by
a Working Group of the Economic Intelligence Committee, including
representatives of the Departments of State, the Army, the Navy, the
Air Force, Commerce, and Agriculture; the International Cooperst=on
Administration; the Office of the Secretary of Defense; and the Cen-
tral Intelligence Agency. It was approved by the Economic Inte.l__i-
gence Committee on 15 February 1960.
For purposes of this report, the term underdeveloped areas in-
cludes the following Free World countries: 1 all countries in Souti;
and Southeast Asia; (2) all countries in the Middle East, including
Egypt, Sudan, Turkey, Greece, Afghanistan, and Pakistan; (3) the
independent countries of Africa, except the Union of South Africa;
(4) all independent countries in Latin America; and (5) Yugoslavia,
Iceland, Spain, and Portugal.
Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
 Approved For Release 2006/02/07 : CIA-RDP92B01090R000400010009-4
S-R-C-R-E-T
CONTENTS
Page
Summary . . . . . . . . . . . . . . . . . . . . . . . . . .
- v -
S-E-C-R-E-T
Approved For Release 2006/02/07 : CIA-RDP92B01090R000400010009-4
 25X1 Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
Next 4 Page(s) In Document Exempt
Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
 Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
SINO-SOVIET BLOC ECONOMIC ACTIVITIES IN UNDERDEVELOPED AREAS
1 JULY - 3L DECEMBER 1959
Summary
The Soviet Bloc, since the death of Stalin, has pursued a policy
that seeks to weaken the influence of the Western powers in under-
developed countries and to expand its own influence into these ,areas.
A major facet of this policy has been the growth of Bloc economic
ties with underdeveloped countries. By expanding commercial contacts
with these countries and by extending economic and military assstanc=
to them, the Bloc hopes to reduce their economic ties with the West
and correspondingly to increase their dependence on the Bloc._ae
Bloc also hopes that by establishing economic ties it may induce the
underdeveloped countries to adopt neutralist, if not pro-Communist,
foreign policies. In addition, the Bloc evidently expects that its
foreign aid program will help to promote the economic and social
changes which it believes will facilitate the emergence of pro-
Communist governments.
During the last half of 1959 the Sino-Soviet Bloc continued ';o
press vigorously its economic assistance program in underdeveloped
countries. New economic credits amounted to approximately $600 :Lil-
lion,* the largest figure for any 6-month period since the Bloc
foreign aid program began and about double the amount of aid extended
for all purposes in the first half of 1959. New credits and grants
for all purposes for the entire year totaled $922 million, slightly
less than in 1958. Moreover, 1959 emerged as a record year for iew
economic credits, exceeding by about $350 million the $560 million
posted in 1958. Although only $6 million of the $922 million in
new credits and grants extended during 1959 were under military agree-
ments, this appeared to be no more than a temporary interruption.
Evidence available late in 1959 indicated that important new military
credits may be concluded early in 1960.
During the second half of 1959 the Bloc obligated $300 million of
its outstanding credits and grants. This brought total allocations
for specific purchases, projects, and schemes to $2.1+ billion by
31 December 1959.**
* Unless otherwise indicated, all dollar values in this report are
in terms of US dollars.
** See Figure 1.
Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
 Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
The USSR has been the chief source of Bloc financial assistance,
and indications are that it will continue to furnish the major portion
of new Bloc foreign aid funds in 1960. In 1959 alone the USSR extended
90 percent of all new credits and grants. Of the cumulative total of
$3.2 billion extended as of 31 December 1959, the USSR provided approxi-
matel;r 73 percent. Although the USSR is more and more assuming the role
of financier and prime contractor for the Bloc's major credit agreements,
the European Satellites are emerging as final contractors on a growing
list of projects financed under these credits.
Utilization of Bloc credits and grants also established a record in
1959, when nearly $400 million were drawn for developmental, military,
and technical assistance projects. Because of the continued high level
of new extensions, however, the unutilized portion of credits and grants
also reached a peak of $2.0 billion by 31 December 1959. Nearly all of
the Bloc aid outstanding as of that date was for economic credits,
military credits having been almost entirely utilized. This situation
is a result of (1) the dearth of new military assistance agreements in
1959 and (2) the relatively rapid rate at which military credits have
been drawn. During 1959, .for example, almost 60 percent of the total
drawings were for military goods and services.
Even though economic credits continue to pile up, Bloc projects are
going forward steadily, and the rate of utilization of economic assist-
ance can be expected to increase in coming years. Highlighting this
progress, the USSR substantially completed the Bhilai steel mill in
India. and started preliminary construction work on the Aswan High Dam
project on the Nile in the closing months of 1959.
The Bloc continued to maintain the brisk pace of its technical
assistance program, employing about 6,500 economic and military techni-
cians in underdeveloped countries during the period July-December 1959.*
Of this number, more than 5,000 were at work on industrial, engineering,
public works, and medical projects. The total number of Bloc techni-
cians present in the last 6 months of the year exceeded the number
estimated to be present in the first 6 months by about 550. The largest
part of the increase was accounted for by technicians arriving to work
on economic development.
Only in the field of trade did the Bloc's economic program appear
to lose momentum in 1959. During the first 6 months of the year, the
latest period for which complete statistics are available, Bloc trade
with underdeveloped areas declined by about 10 percent from the level
reached during the last 6 months of 1958. In the preceding 3 years,
trade in each First half-year period increased by an average of 15 per-
cent above the previous half-year period. Most of the decrease in
total. trade is traceable to a decline in Bloc exports, which, in turn,
See Figure 2.
Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
 Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
S-E-C-R-E-T
reflects the intensified competition in price and conditions of sale
among exporters of manufactured goods in world markets.
Not only did the Bloc's economic offensive reach new levels for
many of the activities pursued in the last 6 months of 1959, but it
expanded into new areas as well. Countries in Africa and Latin America
became the focal points of major Bloc efforts to establish bea-hhead
in Western spheres of influence. The more notable results of these
efforts were (1) Ethiopia's acceptance of two economic developm-aent
credits -- one for $100 million from the USSR and another for 10 mi ! -
lion from Czechoslovakia -- and (2) Brazil's acceptance of a 3-;;-ear
bilateral trade and payments agreement with the USSR. In the ease c:
both Ethiopia and Brazil the agreements with the USSR represen*ed
acceptance of longstanding offers. Pointing up increased Soviet in-
terest in Latin America, First Deputy Premier Anastas Mikoyan mide a
state visit to Mexico, where he opened the Soviet exhibition in Mexii~o
City.
During the last 6 months of 1959 the Sino-Soviet Bloc economic
offensive in the Middle East and Africa was focused mainly on _raq,
Afghanistan, the United Arab Republic (UAR), and Ethiopia, altrcugh
substantial increase in Bloc activity was reported in Cyprus and
Guinea. In Iraq, political factors both abetted and hindered the
Soviet Bloc efforts. Whereas the general political orientation of tl:e
Kassem regime rendered the country highly receptive to Bloc offers,
administrative inefficiency and internal political instability ham-
pered Bloc efforts to capitalize on its strong political position.
Soviet activities in Iraq during the period were concerned primarily
with survey work on projects planned under the $137.5 million credit
agreement concluded in March 1959.
The latter half of 1959 was a period of great activity on the pa-at
of the USSR in Afghanistan, being principally concerned with the imp'e-
mentation of agreements signed previously. Although there were no siz-
able new credits or offers by Sino-Soviet Bloc countries during the
period, work on the major Soviet construction projects continued. two
projects were completed, and another neared completion. The n nr er cf
Bloc technicians working on specific projects increased during tIe
period. These projects related mainly to road and airfield cons*,ruc-s
tion, although Soviet technicians continued to be active in the -xplc-
ration for oil in northern Afghanistan. Soviet Bloc political capa-
bilities in Afghanistan were limited by the fact that there is no Com-
munist Party in the country or any local organization overtly supporting
Bloc propaganda, programs, and objectives. Politically, AfghanU tan
has endeavored to maintain a neutral position on international matters.
- 3 -
S-E-C-R-E-T
Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
 Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
The main theme of Bloc propaganda in the country was the familiar one
of peace and friendship. Neither Afghan acceptance of US economic
assistance nor the implementation of US projects was overtly attacked.
The activities of the Sino-Soviet Bloc in the UAR during the latter
half of 1959 were concentrated mainly on the implementation of projects
that are being financed by credits under the $175 million Soviet-
Egyptian aid agreement and on the maintenance of its large-scale pur-
chases of Egyptian cotton. Major emphasis in the Egyptian sector has
been placed on the expansion of petroleum facilities as well as on
textile, chemical, fertilizer, and miscellaneous industries. Perform-
ance in the Syrian sector was less apparent than in the Egyptian sector.
Recent contractual agreements, however, presage a step-up in Soviet
implementation in 1960.
Owing to the continuation of Nasser's anti-Communist campaign, Bloc
political capabilities in the UAR were negligible during the period.
For the present, at least, Bloc countries appear to be banking on their
performance under existing economic agreements with the UAR as a means
of strengthening their long-run political position in that country.
Notwithstanding increased Soviet participation in the economic develop-
ment of the UAR, one apparent outgrowth of Nasser's political differ-
ences with Soviet leaders has been the substantial improvement in the
opportunities of the Western countries to participate in the development
programs of the UAR. Furthermore, the UAW., desire to achieve a more
balanced trade with. the Bloc and the Free World has become intensified.
Therefore, although, the economic position of the Soviet Bloc remains
strong in the UAR, it was relatively weaker at the end of 1959 than in
July.
Large-scale economic relations of the Soviet Bloc with Ethiopia
during the last half of 1959 were initiated by the visit of Emperor
Haile Selassie to the USSR and Czechoslovakia in July. The visit re-
sulted in economic agreements involving credits of $110 million ($100
million Soviet and $10 million Czechoslovak) for economic development.
The conclusion of the agreements has been interpreted as an indication
of Ethiopia's deep disappointment with the West over the Somali issue.
A nine-man Soviet delegation arrived in Ethiopia shortly after the
Emperor announced a new and extensive land reform program. The dele-
gation subsequently presented a comprehensive offer of financial and
technical assistance for this program. If this offer is accepted, it
will. afford the USSR an opportunity of exercising influence over the
most important sector of the economy.
S-E-C-R-E-T
Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
 Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
S-E-C-R-E-T
Elsewhere in Africa and the Middle East, Bloc economic acti itie
were of significance in Guinea and Yemen. Soviet Bloc political
capabilities in these two countries appear to be limited, however,
inasmuch as both countries are striving to maintain a position of
neutrality between the Bloc and the West. In Guinea, Bloc countries
have been expending considerable effort to attain an important posi-
tion in West Africa. During the period under review the USSR and
Czechoslovakia signed long-term credit agreements with Guinea in-
volving loans of approximately $40 million. Guinean President Sekou
Toure visited the USSR and Czechoslovakia late in the period. bloc
personnel reportedly are investigating Guinean iron ore deposit:,
participating in a roadbuilding program, and advising various govern-
ment agencies. Additional technicians are expected to arrive in the
country as Soviet and Czechoslovak economic agreements are implemented.
In Yemen, Soviet progress on the Port of Hudaydah appears to t, slow-
On the other hand, in spite of various obstacles, the performance of
Communist China on the Al Hudaydah - San'a road seems to be saLisfac-,ory--.
The Sino-Soviet Bloc continued its efforts to increase its in-
fluence in South and Southeast Asia during the last 6 months of 1959,
but its degree of success varied widely. India's border dispute with
Communist China and China's attempts to force Indonesia to abandon
its campaign to eliminate Chinese predominance in rural trade caused
a sharp deterioration of relations between these countries.
The USSR appeared to be attempting with considerable success,
however, to disassociate itself from Communist China's unpopularity.
India continued to be receptive to Soviet Bloc trade and aid offers,
and Nehru remained firmly attached to a policy of nonalignment.
India also accepted almost $450 million in additional credits from
the Soviet Bloc, more than in all previous periods combined. The
Soviet Bloc scored propaganda successes in Indonesia but was unable
to convert them to political advantage during the period. Indonesia
shifted most of its military purchases to the West, the strong in-
digenous Communist Party made little progress toward its tactic.
goals, the Bloc's credit program slowed markedly, and Indonesi._'s
trade with the Bloc diminished somewhat. The change of government ir,
Ceylon appeared, on balance, to have reduced Communist influence
there; Burma reoriented its traditional neutralist foreign policy a
bit in the direction of the West; and Cambodia's neutralism assumed
less of a pro-Communist aspect than in previous periods. Neverthelesu,
Bloc technicians were actively engaged in carrying out aid projects
in all these countries.
- 5 -
S-E-C-R-E-T
Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
 Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
India accepted two Soviet credits totaling $400 million and, in addi-
tion, $48.5 million from Czechoslovakia for projects under its Third
Five Year Plan. The USSR also offered to train 500 more technicians in
the USSR, but the Indian government procrastinated in accepting the offer.
Progress was slow on projects under the $126 million Soviet line of credit
extended to India in 1956.
During the second half of 1959, no new Bloc credit agreements were
signed by Indonesia. The number of Bloc technicians employed in
Indonesia fell sharply, about 4+0 remaining in one large concentration
and a scattering of others being employed in survey work or in the
administration of remaining Bloc projects.
There were no new credit agreements elsewhere in the area. In
Nepal, implementation began on three of five projects scheduled under
the Nepalese-Soviet $7.5 million aid agreement of last April.
In Burma, factors that continued to operate against an increase
in Bloc economic activity included Burmese insistence on grants rather
than loans, dissatisfaction with earlier barter trading arrangements
with Bloc countries, and disappointment with the utility of projects
already underway.
Progress under an earlier $30 million Soviet credit program in
Ceylon was slow, no new projects having been agreed to under this
program since early 1959. Progress on four others that had been con-
tracted for remained at planning levels. There was even less progress
on agreements with Communist China.
Although there was no increase in Bloc aid commitments to Cambodia,
progress on factories financed by Communist China was steady. Three
of these factories are expected to be in operation by early 1961. Re-
action to these projects has been favorable.
Trade with the Bloc for South and Southeast Asia as a whole appeared
likely to represent about the same proportion of the area's total trade
in 1959 as in 1958, although developments varied from country to coun-
try. Among the more important trade developments in 1959 were the entry
of the USSR into the Thai rubber market and heavy Soviet purchases in
the rubber markets of the Federation of Malaya and Singapore. These
purchases were largely responsible for a steep rise in rubber prices.
Indonesian trade with the Bloc diminished somewhat in volume and rela-
tive importance during the first half of 1959. Communist China, In-
donesia's principal trading partner, fell well behind schedule in rice
deliveries. There was no evidence of a renewal of the Chinese Commu-
nist trade offensive in Southeast Asia.
-6-
S-E-C-R-E-T
Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
 Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
S-E-C-R-E-T
Although Indian-Bloc trade agreements for 1959 envisioned, iii moEt
cases, sharply increased trade, actual performance in several cases
was substantially below agreed levels. On balance, however, Indian
trade with the Bloc probably increased in volume and importance in
1959 as a result of increased economic aid. The signing of a nea
trade pact with Poland and the reaching of a new rice-rubber pact:
with Communist China in January 1960 highlighted Ceylonese-Bloc rade
developments. Burma's difficulties in liquidating Bloc balances
under earlier trade and payments agreements continued to be a deter-
rent in concluding trade and clearing agreements with Bloc countries.
During 1959, receptivity to Soviet Bloc approaches increased
markedly in a number of Latin American countries. The USSR bega:i a
large-scale campaign to increase ties with countries in the area
following Khrushchev's visit to the US. Soviet overtures were a?ded
by increased Soviet prestige as a result of various scientific achievl~-
ments and by the increased number of US-Soviet exchanges, which were
interpreted as removing the stigma on the development of relations
with the Communist countries. In this atmosphere, there was mounting
pressure for the expansion of diplomatic and trade relations with the
Bloc, and there was a definite increase in travel to Bloc capitals.
During 1959, anti-US groups in Latin America stepped up their at-
tacks on the US. The flood of anti-US propaganda and some blunt. or
only thinly veiled threats of defection to the side of the Soviet Blo7
in the absence of massive US economic aid can be partly discounted as
a blowoff of repressions. The reactions took their most serious form
in revolutionary Cuba, where the Castro regime came increasingly unde-
Communist influence during the year. In Brazil, which is seeking
foreign aid to avoid a politically dangerous slowdown in economic de-
velopment, there was a significantly keener interest in trade and
possible resumption of diplomatic relations with the USSR.
Latin American trade with the Soviet Bloc appears to have con-
tinued its upward trend during 1959. Trade with Brazil, Uruguay, and
Cuba registered definite increases, and Argentine trade remained at
about the same level as in 1958.
The increase in Brazilian trade with the Bloc was accompanied by
serious consideration of the potential of the Communist countries as
markets for surplus agricultural products, especially coffee, and as
nondollar sources of petroleum and capital equipment. Trends in
Brazilian-Bloc trade and the negotiation of a 3-year Soviet-Brazilian
trade agreement, signed in Moscow near the year's end, suggested he
establishment of a firm basis for further trade increases as weal as
the reestablishment of diplomatic relations.
- 7 -
S-E-C-R-E-T
Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
 Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
The River Plate countries appeared cooler toward the development of
economic relations with the Bloc during 1959, particularly Argentina,
where diplomatic relations with the USSR and other Bloc countries were
noticeably strained. As part of its commitment to the International
Monetary Fund, Argentina gave notice in December of the abrogation of
many of its bilateral trade and payments agreements, including those
with the European Satellites. Although the buildup of Bloc-Argentine
economic relations that took place in 1958 did not continue during
1959, Argentina nevertheless agreed to purchase Soviet petroleum equip-
ment worth $32 million under a $100 million Soviet credit negotiated in
1953. In Uruguay, in spite of government reluctance, trade with Bloc
countries increased again in 1959, primarily as a result of large-scale
Soviet Bloc purchases of wool and sizable Uruguayan imports of Soviet
petroleum.
Cuba, the only other significant Bloc trading partner in Latin
America, exported large quantities of sugar to the USSR during the last
6 months of 1959, and it appears probable that Cuban trade with the
Bloc for all of 1959 exceeded 1958 levels. As has been noted, the
political climate in Cuba appeared especially favorable to Bloc over-
tures. There were reports throughout the period that the Castro govern-
ment was actively considering Soviet and Czechoslovak offers for capital
goods credits, and it was announced late in.1959 that the Soviet exhibi-
tion that had been staged in New York and Mexico City would open in
Havana in February..
In November the broadened scope of Soviet efforts to expand rela-
tions with Latin America was highlighted by an event in Mexico, a
country that for a long time has had diplomatic ties but only nominal
economic and cultural relations with the USSR. The 10-day visit to
Mexico of Soviet First Deputy Premier Mikoyan, ostensibly to open the
Soviet exhibition in Mexico City, included Soviet offers of large
credits and increased trade; a number of important cultural exchanges;
and an invitation to President Lopez Mateo,; to visit Moscow, implying
other high-level Soviet - Latin American interchanges in future months.
The first visit to Latin America ever to be made by a member of the top
Soviet leadership, Mikoyan's trip provided dramatic evidence of in-
creased Soviet attention to that area. As the year closed, Soviet
propaganda and official statements implied that the rapid increase of
cultural, economic, and political ties between the Bloc and Latin
America was a growing and. inevitable trend. Developments in Cuba; the
conclusion by Colombia of quasi-official trade agreements with the
USSR, Hungary, and Rumania; and the announcement that a Chilean trade
delegation would leave for Moscow early in 1960 further indicated a
growing campaign to increase Soviet influence in Latin America on all
fronts -- political, economic, and cultural -- during the next few
years.
S-E-C-R-E-T
Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
 Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
S-E-C-R-E-T
Sino-Soviet Bloc economic activity in underdeveloped countries rf
Europe during the second half of 1959 continued to be limited primarily
to trade. Yugoslav imports from the Bloc declined during the first
three quarters of 1959 compared with the same period of 1958, Fart.l.-
because of the expiration or postponement of most Bloc credits and
partly because of increased difficulties involved in reaching Fgreerient
with Bloc countries on specific imports. Exports to the Bloc, on the
other hand, increased, so that total Yugoslav trade with the Bloc d,.ir-
ing this period was only slightly below the 1958 level. Trade agre--
ments for 1960, as well as the new, longer range 3-year trade eccor~_s
(1960-62) concluded with Hungary, East Germany, and Bulgaria, ca.lle
for only moderate rises in trade. The slower projected rates cif in.-
crease in trade in part reflected Belgrade's desire to limit Bloc t.?ade
to not more than 25 to 30 percent of Yugoslavia's total trade in or_er
to avoid excessive economic dependence on the Bloc.
The Bloc continues to play a major role in Iceland by providing
markets for products that Iceland would have great difficulty ;n ma-t-
keting elsewhere. The Bloc uses this economic advantage, wher( it
can, to achieve political objectives. Twice during 1959, in ar. effn)r L
to influence parliamentary elections, the USSR implied that it mi
reduce its purchases from Iceland. Nevertheless, trade betwe~-n Ice and
and the Soviet Bloc through September 1959, accounting for approxi-
mately one-third of Iceland's total trade, showed no significant change
from the comparable period in 1958.
There was a sharp increase in Spanish trade with the Bloc durin;;
the first 6 months of 1959 compared with the same period of 1)58, but
it accounted for less than 1+ percent of Spain's total foreign trade.
In spite of rising levels of trade with the Bloc, actual increases
during this period lagged far behind the rates of increase that wou?'_d
be required if trade goals anticipated in 1959 agreements with Bloc
countries are to be met.
Similarly, Portuguese trade with the Bloc increased sharply during
the opening 6 months of 1959 compared with 1958, but, in spite of t'iis
increase, it still represented but a small proportion of Portugal's
total foreign trade.
- 9 -
S-E-C-R-E-T
Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
 25X1 Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
Next 123 Page(s) In Document Exempt
Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
 SECRE.T .Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
ECONOMIC INTELLIGENCE REPORT
SINO-SOVIET BLOC ECONOMIC ACTT V If
IN UNDERDEVELOPED AREAS
1 JULY - 2: 1 DECEMBER 1959
. AMARY
(The complete text of t hi - repc rt hts been published separc. tel,~
1C-R14-S8
February 1960
ECONOMIC INTELLIGENCE COMMI
Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
 25X1 Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
 Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
S-E-C-R-E-T
FOREWORD
The reports on Sino-Soviet Bloc economic activities in underde-
veloped areas in the EIC-R14 series provide periodic summaries and
analytical interpretations of significant developments in the eco-
nomic relations of Sino-Soviet Bloc countries with underdeveloped
countries of the Free World. These developments are reported on a
current, factual basis In the Biweekly Reports in the EIC-WGR-1
series, under the same title.
This report, covering the 6 months from 1 July through 31 Decemler
1959, constitutes the eighth periodic supplement to EIC-R14, the back-
ground report on Sino-Soviet Bloc Postwar Economic Activities In
Underdeveloped Areas, 8 August 1956, SECRET. The present supplement
relates noteworthy noneconomic activities to the economic operations
of the Sino-Soviet Bloc in the underdeveloped areas in order to place
the economic aspects in the perspective of the over-all program s a
objectives of the Bloc in these regions. This report was prerjared ty
a Working Group of the Economic Intelligence Committee, including
representatives of the Departments of State, the Army, the Navy, the
Air Force, Commerce, and Agriculture; the International Cooperation
Administration; the Office of the Secretary of Defense; and the Cen-
tral Intelligence Agency. It was approved by the Economic Intelli-
gence Committee on 15 February 1960.
For purposes of this report, the term underdeveloped areas in-
cludes the following Free World countries: (1) all countries In South
and Southeast Asia; (2) all countries in the Middle East, including
Egypt, Sudan, Turkey, Greece, Afghanistan, and Pakistan; (3)-the
independent countries of Africa, except the Union of South Africa;
(4) all independent countries in Latin America; and (5) Yugoslavia,
Iceland, Spain, and Portugal.
The complete text of this report has been published separately
as EIC-R14-S8.
Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
 Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
SINO-SOVIET BLOC ECONOMIC ACTIVITIES IN UNDERDEVELOPED AREAS
1 JULY - 31 DECEMBER 1959
Summary
The Soviet Bloc, since the death of Stalin, has pursued a polio'
that seeks to weaken the influence of the Western powers in under-
developed countries and to expand its own influence into these area.,.
A major facet of this policy has been the growth of Bloc economic
ties with underdeveloped countries. By expanding commercial eontacr'.s
with these countries and by extending economic and military assistance
to them, the Bloc hopes to reduce their economic ties with the West
and correspondingly to increase their dependence on the Bloc. The
Bloc also hopes that by establishing economic ties it may induce thi
underdeveloped countries to adopt neutralist, if not pro-Communist,
foreign policies. In addition, the Bloc evidently expects that its
foreign aid program will help to promote the economic and social
changes which it believes will facilitate the emergence of pro-
Communist governments.
During the last half of 1959 the Sino-Soviet Bloc continued to
press vigorously its economic assistance program in underdeveloped
countries. New economic credits amounted to approximately $600 mile
lion,* the largest figure for any 6-month period since the Bloc
foreign aid program began and about double the amount of aid extended
for all purposes in the first half of 1959. New credits and grants
for all purposes for the entire year totaled $922 million, slightly
less than in 1958. Moreover, 1959 emerged as a record year for new
economic credits, exceeding by about $350 million the $560 million
posted in 1958. Although only $6 million of the $922 million in
new credits and grants extended during 1959 were under military agree-
ments, this appeared to be no more than a temporary interruption.
Evidence available late in 1959 indicated that important new military
credits may be concluded early in 1960.
During the second half of 1959 the Bloc obligated $300 million cf
its outstanding credits and grants. This brought total allocations
for specific purchases, projects, and schemes to $2.4 billion by
31 December 1959.**
* Unless otherwise indicated, all dollar values in this repo rL are
in terms of US dollars.
** See Figure 1.
Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
 Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
S-E-C-R-E-T
The USSR has been the chief source of Bloc financial assistance,
and indications are that it will continue to furnish the major portio,,i
of new Bloc foreign aid funds in 1960. In 1959 alone the USSR cxtend~~d
90 percent of all new credits and grants. Of the cumulative total of
$3.2 billion extended as of 31 December 1959, the USSR provided -pproa-
mately 73 percent. Although the USSR is more and more assuming the role
of financier and prime contractor for the Bloc's major credit agreemeits,
the European Satellites are emerging as final contractors on a growin;
list of projects financed under these credits.
Utilization of Bloc credits and grants also established a record in
1959, when nearly $400 million were drawn for developmental, mi,_t.tary,
and technical assistance projects. Because of the continued high ley-1
of new extensions, however, the unutilized portion of credits ann grafts
also reached a peak of $2.0 billion by 31 December 1959. Nearly all )f
the Bloc aid outstanding as of that date was for economic credit:_;,
military credits having been almost entirely utilized. This situatio_fl
is a result of (1) the dearth of new military assistance agreemeats in
1959 and (2) the relatively rapid rate at which military credits have
been drawn. During 1959, for example, almost 60 percent of the total
drawings were for military goods and services.
Even though economic credits continue to pile up, Bloc projects are
going forward steadily, and the rate of utilization of economic assist-
ance can be expected to increase in coming years. Highlighting this
progress, the USSR substantially completed the Bhilai steel milt in
India and started preliminary construction work on the Aswan Hira Dai
project on the Nile in the closing months of 1959.
The Bloc continued to maintain the brisk pace of its technical
assistance program, employing about 6,500 economic and military t.echti-
cians in underdeveloped countries during the period July-December 19t9.*
Of this number, more than 5,000 were at work on industrial, engineer^ ng,
public works, and medical projects. The total number of Bloc techni-
cians present in the last 6 months of the year exceeded the number
estimated to be present in the first 6 months by about 550. The larF:est
part of the increase was accounted for by technicians arriving to work
on economic development.
Only in the field of trade did the Bloc's economic program appear
to lose momentum in 1959. During the first 6 months of the year, tht
latest period for which complete statistics are available, Bloc trade
with underdeveloped areas declined by about 10 percent from the leve, .
reached during the last 6 months of 1958. In the preceding 3 years,
trade in each first half-year period increased by an average cr 15 pE?r-
cent above the previous half-year period. Most of the decrease in
total trade is traceable to a decline in Bloc exports, which, in turn,
* See Figure 2.
- 2 -
S-E-C-R-E-T
Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
 Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
S-E-C-R-E-T
reflects the intensified competition in price and conditions of sale
among exporters of manufactured goods in world markets.
Not only did the Bloc's economic offensive reach new levels 'or
many of the activities pursued in the last 6 months of 1959, but it
expanded into new areas as well. Countries in Africa and Latin America
became the focal points of major Bloc efforts to establish beachhead?
in Western spheres of influence. The more notable results of these
efforts were (1) Ethiopia's acceptance of two economic development
credits -- one for $100 million from the USSR and another for 'z10 mil-
lion from Czechoslovakia -- and (2) Brazil's acceptance of a 3-year
bilateral trade and payments agreement with the USSR. In the case o
both Ethiopia and Brazil the agreements with the USSR represented
acceptance of longstanding offers. Fbinting up increased Soviet in-
terest in Latin America, First Deputy Premier Anastas Mikoyan made a
state visit to Mexico, where he opened the Soviet exhibition in Mexico
City.
Middle East and Africa
During the last 6 months of 1959 the Sino-Soviet Bloc economic
offensive in the Middle East and Africa was focused mainly on Iraq,
Afghanistan, the United Arab Republic (UAR), and Ethiopia, although f
substantial increase in RLoc activity was reported in Cyprus and
Guinea. In Iraq, political factors both abetted and hindered the
Soviet Bloc efforts. Whereas the general political orientation of tle
Kassem regime rendered the country highly receptive to Bloc offers,
administrative inefficiency and internal political instability ham-
pered Bloc efforts to capitalize on its strong political position.
Soviet activities in Iraq during the period were concerned primarily
with survey work on projects planned under the $137.5 million credit
agreement concluded in March 1959.
The latter half of 1959 was a period of great activity on the pant
of the USSR in Afghanistan, being principally concerned with the imp:.e-
mentation of agreements signed previously. Although there were no s_z-
able new credits or offers by Sino-Soviet Bloc countries during the
period, work on the major Soviet construction projects continued: t=ro
projects were completed, and another neared completion. The number of
Bloc technicians working on specific projects increased during the
period. These projects related mainly to road and airfield construc-
tion, although Soviet technicians continued to be active in the expl:)-
ration for oil in northern Afghanistan. Soviet Bloc political capa-
bilities in Afghanistan were limited by the fact that there is no Cori-
munist Party in the country or any local organization overtly suppor ,ing
Bloc propaganda, programs, and objectives. Politically, Afghanistan
has endeavored to maintain a neutral position on international matters.
- 3 -
S-E-C-R-E-T
Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
 Approved For Release 2006/02/07 : CIA-RDP92B01090R000400010009-4
S -E-C -R-E-T
The main theme of Bloc propaganda in the country was the familiar crie
of peace and friendship. Neither Afghan acceptance of US economic
assistance nor the implementation of US projects was overtly attacked.
The activities of the Sino-Soviet Bloc in the UAR during the letter
half of 1959 were concentrated mainly on the implementation of projects
that are being financed by credits under the $175 million Soviet-
Egyptian aid agreement and on the maintenance of its large-scale pur-
chases of Egyptian cotton. Major emphasis in the Egyptian sector has
been placed on the expansion of petroleum facilities as well as on
textile, chemical,, fertilizer, and miscellaneous industries. rfcrm-
ance in the Syrian sector was less apparent than in the Egyptian sector.
Recent contractual agreements, however, presage a step-up in Soviet
implementation in 1960.
Owing to the continuation of Nasser's anti-Communist campaign, 31oc
political capabilities in the UAR were negligible during the period.
For the present, at least, Bloc countries appear to be banking on tn.etr
performance under existing economic agreements with the UAR as a?means
of strengthening their long-run political position in that country.
Notwithstanding increased Soviet participation in the economic develop-
ment of the UAR, one apparent outgrowth of Nasser's political differ-
ences with Soviet leaders has been the substantial improvement in tiie
opportunities of the Western countries to participate in the development..
programs of the UAR. Furthermore, the UAR's desire to achieve a more
balanced trade with the Bloc and the Free World has become intensified.
Therefore, although the economic position of the Soviet Bloc remains
strong in the UAR, it was relatively weaker at the end of 1959 than in
July.
Large-scale economic relations of the Soviet Bloc with Ethiopia
during the last half of 1959 were initiated by the visit of Emperor
Haile Selassie to the USSR and Czechoslovakia in July. The visit re-
sulted in economic agreements involving credits of $110 million ($i1)0
million Soviet and $10 million Czechoslovak) for economic deve_opmerit.
The conclusion of the agreements has been interpreted as an indication
of Ethiopia's deep disappointment with the West over the Somali issie.
A nine-man Soviet delegation arrived in Ethiopia shortly after the
Emperor announced a new and extensive land reform program. The dely-
gation subsequently presented a comprehensive offer of financial ani
technical assistance for this program. If this offer is accepted, it
will afford the USSR an opportunity of exercising influence over the
most important sector of the economy.
- 1. -
S-E-C-R-E-T
Approved For Release 2006/02/07 : CIA-RDP92B01090R000400010009-4
 Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
S-E-C-R-E-T
Elsewhere in Africa and the Middle East, Bloc economic activitie>?
were of significance in Guinea and Yemen. Soviet Bloc political
capabilities in these two countries appear to be limited, however,
inasmuch as both countries are striving to maintain a position of
neutrality between the Bloc and the West. In Guinea, Bloc countries
have been expending considerable effort to attain an important posi-
tion in West Africa. During the period under review the USSR and
Czechoslovakia signed long-term credit agreements with Guinea in-
volving loans of approximately $4o million. Guinean President Sekou
Toure visited the USSR and Czechoslovakia late in the period. Bloc
personnel reportedly are investigating Guinean iron ore deposits,
participating in a roadbuilding program, and advising various govern-
ment agencies. Additional technicians are expected to arrive in the
country as Soviet and Czechoslovak economic agreements are implemented.
In Yemen, Soviet progress on the Port of Hudaydah appears to be slow
on the other hand, in spite of various obstacles, the performance of
Communist China on the Al Hudaydah - San'a road seems to be satisfac-;ory
South and Southeast Asia
The Sino-Soviet Bloc continued its efforts to increase its in-
fluence in South and Southeast Asia during the last 6 months of 1959,
but its degree of success varied widely. India's border dispute with
Communist China and China's attempts to force Indonesia to abandon
its campaign to eliminate Chinese predominance in rural trade caused
a sharp deterioration of relations between these countries.
The USSR appeared to be attempting with considerable success,
however, to disassociate itself from Communist China's unpopularity.
India continued to be receptive to Soviet Bloc trade and aid offers,
and Nehru remained firmly attached to a policy of nonalignment.
India also accepted almost $450 million in additional credits from
the Soviet Bloc, more than in all previous periods combined.' 'he
Soviet Bloc scored propaganda successes in Indonesia but was unable
to convert them to political advantage during the period. Indonesia
shifted most of its military purchases to the West, the strong in-
digenous Communist Party made little progress toward its tactical
goals, the Bloc's credit program slowed markedly, and Indonesia's
trade with the Bloc diminished somewhat. The change of goverment in
Ceylon appeared, on balance, to have reduced Communist influence
there; Burma reoriented its traditional neutralist foreign policy a
bit in the direction of the West; and Cambodia's neutralism assiuned
less of a pro-Communist aspect than in previous periods. Neverthele;s,
Bloc technicians were actively engaged in carrying out aid proJects
in all these countries.
- 5 -
S-E-C-R-E-T
Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
 Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
S-E-C-R-E-T
India accepted two Soviet credits totaling $400 million and, in adds-
tion, $48.5 million from Czechoslovakia for projects under its Thirt
Five Year Plan. The-USSR also offered to train 500 more technicianr in
the USSR, but the Indian government procrastinated in accepting the offEr.
Progress was slow on projects under the $126 million Soviet line of crease:
extended to India in 1956.
During the second half of 1959, no new Bloc credit agreements wire
signed by Indonesia. The number of Bloc technicians employed in
Indonesia fell sharply, about 40 remaining in one large concentraticn
and a scattering of others being employed in survey work or in the
administration of remaining Bloc projects.
There were no new credit agreements elsewhere in the area. In
Nepal, implementation began on three of five projects scheduled under
the Nepalese-Soviet $7.5 million aid agreement of last April.
In Burma, factors that continued to operate against an increase
in Bloc economic activity included Burmese insistence on grants ratter
than loans, dissatisfaction with earlier barter trading arrangementf
with Bloc countries, and disappointment with the utility of project:
already underway.
Progress under an earlier $30 million Soviet credit program in
Ceylon was slow, no new projects having been agreed to under this
program since early 1959. Progress on four others that had been cor.-
tracted for remained at planning levels. There was even less progrfss
on agreements with Communist China.
Although there was no increase in Bloc aid commitments to Cambocia,
progress on factories financed by Communist China was steady. Three
of these factories are expected to be in operation by early 1961. 1e-
action to these projects has been favorable.
Trade with the Bloc for South and Southeast Asia as a whole appcarea
likely to represent about the same proportion of the area's total trade
in 1959 as in 1958, although developments varied from country to coin-
try. Among the more important trade developments in 1959 were the entry
of the USSR into the Thai rubber market and heavy Soviet purchases in
the rubber markets of the Federation of Malaya and Singapore. These
purchases were largely responsible for a steep rise in rubber pricer
Indonesian trade with the Bloc diminished somewhat in volume and re3a-
tive importance during the first half of 1959. Communist China, In.
donesia's principal trading partner, fell well behind schedule in r:J_ce
deliveries. There was no evidence of a renewal of the Chinese Comnm-
nist trade offensive in Southeast Asia.
-6-
S-E-C-R-E-T
Approved For Release 2006/02/07 : CIA-RDP92BO109OR000400010009-4
 Approved For Release 2006/02/07 : CIA-RDP92B01090R000400010009-4
S-E-C-R-E-T
Although Indian-Bloc trade agreements for 1959 envisioned, in mc.,st
cases, sharply increased trade, actual performance in several cases
was substantially below agreed levels. On balance, however, :