AID AND TRADE ACTIVITIES OF COMMUNIST COUNTRIES IN LESS DEVELOPED AREAS OF THE FREE WORLD - 1965

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP92B01090R000400010021-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 42
• Document Creation Date: December 19, 2016
• Document Release Date: January 25, 2006
• Sequence Number: 21
• Publication Date: March 1, 1966
• Content Type: REPORT

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AID AND TRADE ACTIVITIES OF COMMUN
COUNTRIES-IN LESS 'DEVELOPED AREAS
OF THE FREE WORLD - 1965
EC R14-S20
MARCH 1966
ECONOMIC INTELLIGENCE COMMITTEE
of the
UNITED STATES INTELLIGENCE BOARD
GROUP 1
~IIMIG
E.CLUDED. FROM AUTOMATIC
AND DECLASSIFICATIO
O
ST
SECRET
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AID AND TRADE ACTIVITIES OF COMMUNIS"
COUNTRIES IN LESS DEVELOPED AREAS
OF THE FREE WORLD - 1965
EIC R14-S20
MARCH 1966
ECONOMIC INTELLIGENCE COMMITTEE
of the
UNITED STATES INTELLIGENCE BOARD
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FOREWORD
The EIC-R14 series provides periodic summaries and analytical
interpretations of significant developments in the economic relations
and military aid activities of Communist countries with less developed
countries of the Free World. These developments are reported oit
a current, factual basis in the Biweekly Reports in the EIC-WGR- t
series.
This report, covering the 12 months from 1 January through 3 i
December 1965, constitutes the twentieth periodic supplement to
EIC-R14, the initial report on Sino-Soviet Bloc Postwar Economic
Activities in Underdeveloped Areas, 8 August 1956, SECRET. The
present supplement updates the previous semiannual report and in-
cludes the more significant developments during the reporting period.
It also relates noteworthy noneconomic activities, including military
aid, to economic operations of the Communist countries in less de-
veloped areas. Data have been revised to include new information n,
and figures in the current supplement supersede those in previous
issues. This report was prepared by the Department of State and
the Central Intelligence Agency. The draft was reviewed and co-
ordinated by a Working Group of the Economic Intelligence Com-
mittee, which includes representatives of the Department of State,
the Defense Intelligence Agency, the Departments of Commerce and
Agriculture, the Agency for International Development, the National
Security Agency, and the Central Intelligence Agency. The final re-
port was approved by the Economic Intelligence Committee on 8 Fel '-
ruary 1966.
In this report the term Communist countries refers primarily to the
following countries that extend aid to less developed countries of the
Free World: the USSR, Communist China, and the following countries
of Eastern Europe-Bulgaria, Czechoslovakia, East Germany, Hun-
gary, Poland, and Rumania. For certain limited purposes the term
also may include Albania, Cuba, Mongolia, North Korea, and North
Vietnam, none of which is nonnally a donor of aid. Yugoslavia is
not included.
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The term less developed countries of the Free World includes the
following: (1) all countries of Africa except the Republic of South
Africa; (2) all countries in Asia except Japan; (3) Iceland, Portugal,
and Spain; (4) all countries in Latin America except Cuba; and (5)
all. countries in the Middle East, including Cyprus, Greece, Syria,
Turkey, and the United Arab Republic.
iv
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CONTENTS
Pralge
Summary ............... . ............................. L
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AID AND TRADE ACTIVITIES OF COMMUNIST
COUNTRIES IN LESS DEVELOPED AREAS
OF THE FREE WORLD, 1965
SUMMARY
Introduction
The sizable new extensions* of economic aid by the USSR to less
developed countries during 1965 and the continuing high level of
deliveries of military equipment to these countries indicate the willing-
ness of the new Soviet leadership to extend new economic aid where
favorable opportunities exist and to fulfill its existing commitments.
They also demonstrate that Moscow's current appraisal of the aid
program and its prospects in less developed countries differs little
from that of the previous regime (see Figure 1).
It is apparent, however, that the new leadership has adopted a
more deliberate approach in undertaking new economic aid commit-
ments. Unlike the earlier practice of announcing large umbrella
credits before specific projects were negotiated, the USSR in 1965
apparently preferred to avoid definitive commitments pending detailed
studies and negotiations. Moreover, the financial details of recent
Soviet aid agreements have not been publicly announced in the USSR.
This restraint may be an effort to allay internal criticism of the pro-
gram while domestic shortages still persist. It may also reflect the
uncertainty surrounding critical decisions over Soviet allocation of
domestic resources still to he made for the upcoming long-term eco-
nomic plan. The change in Soviet leadership has had no discernible
adverse effect on military aid policy: new aid agreements to supply
military equipment to nine less developed countries were signed
during the year and the USSR continued to honor existing agreements.
* In this report the term extension refers to a commitment to provide, either as a grant
or on deferred payment terms, goods and services not available in the recipient country.
Assistance is considered to have been extended when accords are initialed and constitute
a formal declaration of intent. The term obligation refers to a credit or grant when it has
been allocated to specific end uses. The term drawings refers to the delivery of goods or
the use of services.
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The year 1965 was one of serious problems and frustrations for
Peiping's policy toward less developed countries. The Indonesian
Army's suppression of the pro-Peiping Indonesian Communist Party
during the last three months of the year was perhaps the most serious
setback to Peiping's expectations. Chinese Communist failure in
Algiers to marshal Afro-Asian support and Cuba's recent shift to more
explicit support of many Soviet policy positions also appeared to
have somewhat blunted Peiping's drive to expand its influence in the
lc;ss developed world.
East European countries, on the other hand, expanded their aid
programs in 1965 -and continued to apply the more liberal aid policies
I hat became apparent in their new aid undertakings during 1964.
All major new aid extended during 1965 carried easier terms than
in the past, and a more liberal attitude was applied to the repayment
problems of a number of aid recipients. These developments, to-
gether with a record level of East European aid extended in 1965,
demonstrate the determination of these countries to exploit the aid
program as a means of strengthening further their economic and
political ties with the less developed countries.
Economic Credits and Grants
Following peak annual extensions of almost $1.7 billion in 1964,
4 .ommunist countries extended a total of $1.2 billion of aid to 23
less developed countries during 1965, increasing their aggregate aid
commitments since the inception of the aid. program in 1954 to more
than $7.7 billion. As in 1964, the major share of new economic assist-
ance was allocated to Middle Eastern countries, with Iran the largest
single aid recipient and the UAR second. East European countries
extended a record $501 million of new aid during 1965. The USSR
extended $659 million, more than 80 percent of which was designated
for LENTO countries. Communist China was the smallest aid donor
during the year, extending only $62 million in economic credits, com-
I,ared with its record commitments of $338 million in 1964. New
economic aid continued as in the past to be most heavily committed
to the industrial sector of the economies of less developed countries,
while an increasing allocation of aid to commodity imports reflected
a growing Communist awareness of the need to generate local cur-
rency to implement the aid program more effectively.
I;r-rgr-T
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CONOMIC AND MILITARY AID ACIIVITES OF COMMUNIST COUI
IN LESS DEVELOPED COUNTRIES OF THE FREE WORLD
Selected Years, 1954-65
0 Communist China
? Eastern Europe
EM USSR
ECONOMIC AND MILITARY
TECHNICIANS
MILITARY AID EXTENDED
= Communist China
M Eastern Europe
USSR
1000 Million US Dollars
STUDENTS DEPARTING FROM LESS DEVELOPTh
COUNTRIES FOR TRAINING IN COMMUNIST
COUNTRIES
Data ore revised periodically to include new ir~o:, atior ar i tneaeh
may not be comparable with data previously fired
M Military
O Economic
SECRET
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Drawings on Communist aid in 1965 are estimated to have totaled
about $455 million (a decline of about 15 percent from the 1964 level),
bringing total Communist deliveries since .1954 up to $2.6 billion at
the end of 1965. Concurrent with the rise in aggregate drawings,
the net indebtedness of the less developed countries for economic aid
to the USSR and to the countries of Eastern Europe increased to
about $2 billion by the end of 1965. In 1965 the less developed
countries were scheduled to repay an estimated total of $115 million
for principal and interest on Soviet credits and approximately $45
million on credits from East European countries. As in 1964, there
was evidence that a number of aid recipients were unable to meet
these heavy repayment obligations, and concessions were made in
some cases to allow deferment of current debt service payments.
In addition, softer terms on new credit extensions were requested,
and new assistance, especially by the countries of Eastern Europe,
generally allowed longer repayment periods. Even if future aid pro-
gram deliveries were to remain at current levels, annual debt repay-
ments on credit extensions would increase at a rate of between 25
and 30 percent a year and thus will be a growing problem.
Economic Technicians
The technical assistance program continued apace with almost 18,000
Communist economic technicians employed in less developed coun-
tries during 1965, an increase of 30 percent over the previous year.
A sharp expansion in the number of Chinese Communist technical
personnel accounted for most of the increase and reflected the acceler-
ated pace of Chinese project activity in Guinea, Mali, and Yemen
as well as the labor-intensive character of Chinese aid activities.
Approximately two-thirds of all Communist technical personnel in
the less developed countries were employed in Afghanistan, Algeria,
Guinea, India, Mali, Nepal, and the United Arab Republic (UARr.
In the UAR alone there were nearly 2,500 Soviet technicians, 1,500
of whom were engaged in construction of the main dam and the
electric power grid system eventually to be fed by the Aswan High
Dam. About 2,100 Chinese were employed in Guinea and Mali
developing agricultural areas and small-scale industrial facilities.
Technical Trainees and Academic Students
As part of the program to increase the technical proficiency of
personnel in less developed countries, almost 1,600 persons from these
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countries went to Communist countries during 1965 to receive techni-
cal training. This brought the total number of persons who have
undertaken this training since 1956 to almost 11,000. These trainees
have included professional and managerial personnel and skilled tech-
nicians whose training is related primarily to the manpower require-
ments for Communist-aided projects in their homeland.
Academic Students
During 1965, 1,765 students from less developed countries en-
rolled in academic training programs in Communist countries. This
number represents a drop of approximately 36 percent from the
preceding year, which is also the third consecutive year in which a
decline has occurred. Continuing the pattern of the past, by far
the largest percentage of new enrollees went to the USSR and, as
in recent years, most of the new students were from African countries.
Military Credits and Grants
Communist countries extended at least $187 million of military
aid to less developed countries during 1965, bringing the total of
such assistance extended since 1955 up to $4.3 billion. The USSR,
which has provided 87 percent of total Communist military aid to
less developed countries since the beginning of the program, con-
tinued to he the chief supplier in 1965. Although new aid commit-
nents in 1965 were considerably below the near-record level of 1964,
the USSR and Czechoslovakia each concluded important new agree-
ments with India; in addition, the USSR concluded agreements with
Algeria, Congo (Brazzaville), Ghana, Guinea, Indonesia, Uganda, the
(JAR, and Yemen. Minor credits were extended by Bulgaria to India
and by Communist China to Cambodia.
Military Technicians and Training
As materiel deliveries under old agreements continued at a high
level in 1965, the number of military technicians sent to assist in
the assembly of equipment and to instruct in its use rose to 3,870,
an increase of 17 percent over 1964. Afghanistan, Algeria, and India
accounted for the largest part of the increase although most of the
ether military aid recipients also employed more technicians in 1965
than they had in the previous year. During 1965, 2,720 nationals
from 15 less developed countries enrolled in military training pro-
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grams in Communist countries, primarily in the USSR. Since the
start of the program, nearly 21,000 persons have received such train-
ing, and 4,355 still were being trained at the end of 1965. Indonesia
has accounted for more than 40 percent of the total number trained,
and five other countries--Afghanistan, Algeria, Iraq, Syria, and the
UAR-have accounted for another 45 percent.
Trade
At the meetings of the United Nations Conference on Trade and
Development in 1965, the Communist countries continued to avoid
precise commitments to the less developed countries on grounds that
the responsibility for the present economic plight of these countries
rests with the "imperialists." In place of substantive undertakings,
the Communist countries reiterated many of the same themes that
they had presented at the Geneva Conference in 1964. In general,
the less developed countries remained unimpressed by these Com-
munist propaganda claims, realizing that the Communist area cannot
match the developed countries of the Free World in fulfilling their
trade and development needs.
Foreign trade turnover between the Communist and less developed
countries during the first half of 1965 amounted to $1.9 billion, or
roughly 15 percent above the corresponding period of 1964. This
expansion was accounted for primarily by increased Soviet and East
European trade with the less developed countries. In 1964, total
Communist trade with these countries increased 12 percent over 19&3
to $3.6 billion. The growth during 1964 was accounted for by in-
creased East European and Chinese Communist trade. Soviet trade
with the less developed countries in 1964 remained at the 1963 level
of $1.4 billion, primarily because of a decline in Soviet imports of
rubber and cotton and a leveling off of Soviet exports under long.
term economic credits. The geographic distribution of Communist
trade with the less developed countries during the first half of 1965
followed the pattern of 1964, concentrating on Asia and the Middle
East in general and on India and the UAR in particular. In 1964
the commodity composition of trade between Communist and less
developed countries showed some variations from earlier years. The
share of food products in. total Communist imports rose from 27 to
39 percent of the total, while crude materials declined from 60 to 45
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percent. In the case of Communist exports, the most striking feature
was the rise in the importance of machinery and equipment, which
now accounts for two-fifths of total Communist exports to less de-
veloped countries, compared with one-third in 1963.
Africa
Communist relations with African countries during 1965 were high-
lighted by a low level of new economic aid commitments; by some
sharp setbacks for Communist, particularly Chinese, policies in Africa;
and by a general decline in overt Sino-Soviet competition for influence
in African countries. Only $99 million in new aid was extended
during the year, a precipitous drop from the peak annual level of
$348 million. in 1964. The USSR did not conclude any major agree-
ments in 1965, compared with $215 million extended to African coun-
tries during the previous year.
The overthrow of Ben Bella in Algeria and the assumption of power
by the Boumedienne regime ended the use of that country as a forum
For Communist, especially Soviet, propaganda. The Afro-Asian
(Bandung II) Conference, avidly sought by Communist China as an
instrurnerit for expanding its influence among participating countries,
was canceled. In spite of these policy reversals, however, Communist
aid activities, particularly military, continued, and a Boumedienne
visit to Moscow in December served to assure the continuance of
Soviet programs in Algeria.
No new Communist aid commitments were made to Congo (Brazza-
ville). . but some progress was noted under existing Soviet and Chinese
credits. The favorable Chinese position in the Central African Re-
public (CAR) came to an abrupt end with the overthrow of the Dacko
government and CAR's severance of diplomatic relations with Com-
munist China. Morocco was the recipient of the largest Communist
credit extended to an African country in 1965, $30 million from Poland.
Nigeria received its first economic aid credit from a Communist coun-
try with the acceptance of a $14 million credit from Czechoslovakia.
Ghana was the recipient of a $20 million credit from East Ger-
many, and President Nkrumah announced his decision to initiate dis-
cussions with the USSR for the construction of a $100 million hydro-
electric dam at Bui. Guinean President Toure' visited the USSR and
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Hungary and claimed that he had received Soviet assurances of assist-
ance for construction of the Konkoure dam and related aluminum
facilities. About 770 Chinese technicians were employed in Guinea,
mainly at the site of the Kinkon dam and at the _Macenta textile
project. Mali also was host to a large number of Chinese technical
personnel, about 1,230 employed largely on agricultural and light
industrial projects. In Tanzania, Communist aid programs were
characterized by Chinese cash disbursements, a modest amount of
East German construction activity, and deliveries of Soviet military
equipment.
Asia
Major Communist aid activities in Asian countries during 1965
generally followed the pattern of recent years. Construction ac-
tivities in Afghanistan and India continued at a high level, while
the programs in Ceylon and Indonesia reflected the usual confusion
and lack of satisfactory progress. Military aid, however, continued
to be delivered rapidly, concentrated in Afghanistan, India, and
Indonesia.
Although Soviet construction projects in Afghanistan progressed
satisfactorily, the USSR also initiated action to ease some of Afghani-
stan's financial problems. Commodity credits were extended to gen-
erate local currency for Soviet projects, some debt payments were
rescheduled, and the services of a number of Soviet technicians were
provided without charge. Soviet military aid activities also continued
at a high level. In March, Afghanistan accepted its first aid from
Communist China, a $28 million interest-free credit.
Burma was the recipient of only one Communist credit during 1965,
$10 million from Poland for the purchase of Polish industrial equip-
ment. Chinese construction activity continued to increase, and the
Kunlong bridge was opened to traffic in November. There was little
significant economic aid activity in Cambodia. Communist China
agreed to provide military equipment sufficient to equip about 10,000
Cambodian military personnel. A change in government in Ceylon
early in 1965 brought a shift in that country's foreign policy and an
effort to improve relations with the West. Prior to the election, East
Germany had extended a $42 million credit to Ceylon.
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India continued to search for substantial amounts of foreign eco-
n.omic assistance during 1965 for its Fourth Five Year Plan, and two
high-level delegations traveled to Moscow to obtain Soviet aid.
Prime Minister Shastri's visit in May formalized the Bokaro steel mill
agreement. In November, Finance Minister Krishnamachari re-
[)ortedly sought as much as $1.5 billion from the USSR for India's
+levelopment program. No specific Soviet commitments, however,
have been made public. Soviet military aid to India picked up in
tempo after September with the signing of a $100 million agreement
with the USSR for naval equipment and an accord with Czechoslo-
vakia for more than 250 medium tanks. The USSR delivered at least
ii--an.d perhaps an additional 10-MIG-21 jet fighters to India.
The abortive "coup" in Indonesia in September highlighted that
1 -ountrv's relations with the Communists. Relations with Communist
China deteriorated rapidly as Indonesian military leaders became con-
vinced that the Chinese were implicated. All trade with China was
s'mbargoed and Chinese economic technicians withdrawn. Indo-
nesian-Soviet relations, however, remained relatively unchanged.
Iilitarv deliveries continued, and a new agreement totaling $26
a million was signed in May.
Soviet and Chinese aid activities in Nepal continued to focus on
wadbuilding projects. Pakistan further expanded its relations with
the Communist countries, especially Communist China, during 1965.
A. $60 million Chinese credit was formally signed in February, and
half the total was allocated for industrial installations. Soviet aid to
Pakistan totaled $50 million, largely for the import of machinery and
?quipment.
Latin America
Latin. American economic relations with Communist countries were
-confined largely to trade. Large grain sales by Argentina to Com-
+nunist China and the USSR, totaling at least $245 million, highlighted
such trade. In September the USSR extended a $15 million credit to
he Argentine oil industry. Brazil's foreign economic policies reflected
a. cautious interest in expanding trade with the Communist countries.
An agreement was concluded between the USSR and a private
Brazilian firm for an unspecified credit to construct a pilot plant for
processing shale oil. During the year, Communist China purchased
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1 -1
11,500 tons* of copper and 40,000 tons of sodium nitrate from Chile,
paying for these purchases in hard currency.
Middle East
Communist aid activities in the Middle East were highlighted by
major commitments to Iran and Turkey, an $84 million credit to a
Greek shipowner, and additional sizable aid commitments for the
UAR's Second Five Year Plan (July 1965 - June 1970). In Cyprus
the USSR completed its military aid deliveries under the September
1964 agreement (transshipped through the UAR, where some SAM
equipment still was in storage), and a number of Communist countries
concluded trade protocols designed to absorb much of Cypriot agri-
cultural surpluses. Trade between Greece and the Communist coun-
tries remained at a high level. The USSR extended an $84 million
credit to a private firm for the purchase of Soviet ships with payment
to be made over a period of eight years in hard currency and Greek
commodities.
The USSR achieved a significant economic breakthrough in Iran
with the negotiation of a $290 million credit for the construction of
a steel mill, a machine tool plant, and a natural gas pipeline. The
credit will be repaid over 12 years at 2.5 percent interest in Iranian
commodities and natural gas. The pipeline will be built to carry gas
to the Soviet border, but the USSR apparently will not supply the
large-diameter pipe required for the line. Iran also accepted credits
from Czechoslovakia and Hungary totaling $25 million.
No new Communist credits were extended to Iraq, but the USSR
agreed to obligate part of its 1959 credit for the construction of a
dam on the Euphrates River and a tractor assembly plant. Syria was
the recipient of credits from East Germany totaling $29.7 million. 9
defunct Polish credit of $15 million was revived and raised to $25
million. A new Soviet military agreement was signed with Yemen
Turkey showed a willingness to expand economic relations with the
USSR. During an August visit to Moscow, Prime Minister Urguplu
accepted a Soviet commitment to construct a number of plants in
Turkey under a credit unofficially placed at $200 million. Although
a new government emerged in October, Soviet surveys subsequently
* Tonnages are given in metric tons throughout this report.
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were initiated to determine the precise cost of seven projects which
Quay be undertaken. In December an agreement was announced by
Turkey, resulting from an official exchange of letters.
During 1965 an additional $255 million was extended by Commu-
uist countries to the UAR, bringing to almost $900 million the total
of Communist aid commitments made during the past two years for
the UAR's Second Five Year Plan. Economic difficulties in the UAR,
however, compelled the regime to initiate a review of the development
program, resulting in the cancellation of a number of Soviet, Czecho-
slovak, Polish, and Rumanian projects. In September a new military
aid agreement was signed with the USSR.
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25X1 MPPFUV d For Release 2006/02/07 CIA-RDP92B01090R0004000100 0 62
AID AND TRADE ACTIVITIES OF COMMUNSI
COUNTRIES IN LESS DEVELOPED AREAS
OF THE FREE WORLD -1965
EIC R14--S20
MARCH 1966
ECONOMIC INTELLIGENCE COMMITTEE
of the
UNITED STATES INTELLIGENCE BOARD
)UMMARY
The complete text of this report has been published separately
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E%CLUDED, FROM AUTOMATIC DUwNGR1101NG 1
AND DECLASSIFICATION
SET
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I'lus iMaterial contains information affecting the National
Uefen. of the United States within the meaning of the
+'s ini -,e laws, Title 18, USC, Sees. 793 and 794, the
ir,Gnsnmsion or revelation of which in any manner to an
0nau1110rized person is prohibited by law.
f ;C ONOMIC INTELLIGENCE COMMITTEE
Reores(nutativos of the Department of State; the )e-
fense lntrlligencc Agency; the Departments of the Army.
Navy, and Air Force; the National Security Agency; and
the Central Intelligence Agency are members of the
Economic intelligence Committee. Representatives from
the Office of the Secretary of Defense; the Departments
of the Trcasnry, Agriculture, and Commerce; the Federal
Reserve Board; the Agency for International Develop-
ment; and r.everal other departments and agencies of he
Government are associate members of the Committee.
inteo and Disseminated by the
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FOREWORD
The ETC-R14 series provides periodic summaries and analytical
interpretations of significant developments in the economic relations
and military aid activities of Communist countries with less developed
countries of the Free World. These developments are reported on
a current, factual basis in the Biweekly Reports in the EIC-WGR-1.
series.
This report, covering the 12 months from 1 January through 31
December 1965, constitutes the twentieth periodic supplement to
EIC-R14, the initial report on Sino-Soviet Bloc Postwar Economic
Activities in Underdeveloped Areas, 8 August 1956, SECRET. The
present supplement updates the previous semiannual report and in-
cludes the more significant developments during the reporting period.
It also relates noteworthy noneconomic activities, including military
aid, to economic operations of the Communist countries in less de-
veloped areas. Data have been revised to include new information.,
and figures in the current supplement supersede those in previous
issues. This report was prepared by the Department of State and
the Central Intelligence Agency. The draft was reviewed and co-
ordinated by a Working Group of the Economic Intelligence Com-
mittee, which includes representatives of the Department of State,
the Defense Intelligence Agency, the Departments of Commerce and
Agriculture, the Agency for International Development, the National
Security Agency, and the Central Intelligence Agency. The final re-
port was approved by the Economic Intelligence Committee on 8 Feb-
ruary 1966.
In this report the term Communist countries refers primarily to the
following countries that extend aid to less developed countries of the
Free World: the USSR, Communist China, and the following countries
of Eastern Europe-Bulgaria, Czechoslovakia, East Germany, Hun-
gary, Poland, and Rumania. For certain limited purposes the term
also may include Albania, Cuba, Mongolia, North Korea, and North
Vietnam, none of which is normally a donor of aid. Yugoslavia is
not included.
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Tbc term less developed countries of the Free World includes the
following: (1) all countries of Africa except the Republic of South
Africa; (2) all countries in Asia except Japan; (3) Iceland, Portugal,
and Spain; (4) all countries in Latin America except Cuba; and (5)
all countries in the Middle East, including Cyprus, Greece, Syria,
Turkey, and the United Arab Republic.
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1 -1
AID AND TRADE ACTIVITIES OF COMMUNIST
COUNTRIES IN LESS DEVELOPED AREAS
OF THE: FREE WORLD,* 1965
SUMMARY
Introduction
The sizable new extensions** of economic aid by the USSR to less
developed countries during 1965 and the continuing high level t)f
deliveries of military equipment to these countries indicate the willing-
ness of the new Soviet leadership to extend new economic aid where
favorable opportunities exist and to fulfill its existing commitments.
They also demonstrate that Moscow's current appraisal of the aid
program and its prospects in less developed countries differs little
from that of the previous regime.
It is apparent, however, that the new leadership has adopted a
more deliberate approach in undertaking new economic aid commit-
ments. Unlike the earlier practice of announcing large umbrella
credits before specific projects were negotiated, the USSR in 196
apparently preferred to avoid definitive commitments pending detailed
studies and negotiations. Moreover, the financial details of recent
Soviet aid agreements have not been publicly announced in the USSR,
This restraint may be an effort to allay internal criticism of the pro-
gram while domestic shortages still persist. It may also reflect the
uncertainty surrounding critical decisions over Soviet allocation of
domestic resources still to he made for the upcoming long-term eco-
nomic plan. The change in Soviet leadership has had no discernible
adverse effect on military aid policy: new aid agreements to supply
* For a graphic presentation of these activities, see Figures 1 through 8, at the end of
the Summary.
** In this report the term extension refers to a commitment to provide, either as a grant
or on deferred payment terms, goods and services not available in the recipient country.
Assistance is considered to have been extended when accords are initialed and constitute
a formal declaration of intent. The term obligation refers to a credit or grant when it
has been allocated to specific end uses. The term drawings refers to the delivery of
goods or the use of services.
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military equipment to nine less developed countries were signed
luring the year and the USSR continued to honor existing agreements.
The year 1965 was one of serious problems and frustrations for
Peipings policy toward less developed countries. The Indonesian
Army's suppression of the pro-Peiping Indonesian Communist Party
luring the last three months of the year was perhaps the most serious
setback: to Peiping's expectations. Chinese Communist failure in
Algiers to marshal Afro-Asian support and Cuba's recent shift to more
explicit support of many Soviet policy positions also appeared to have
somewhat blunted Peiping's drive to expand its influence in the less
developed world.
East European countries, on. the other hand, expanded. their aid pro-
grams in 1965 and continued. to apply the more liberal aid policies
that became apparent in their new aid undertakings during 1964. All
major new aid extended during 1965 carried easier terms than in the
past, and a more liberal attitude was applied to the repayment prob-
lems of a number of aid recipients. These developments, together
with a record level of East European aid extended in 1965, demonstrate
the determination of these countries to exploit the aid program as a
means of strengthening further their economic and political ties with
the less developed countries.
Economic Credits and Grants
Following peak annual extensions of almost $1.7 billion in 1964,
Communist countries extended a total of $1.2 billion of aid to 23 less
developed countries during 1965, increasing their aggregate aid com-
mitments since the inception of the aid program in 1954 to more than
$7.7 billion. As in 1964, the major share of new economic assistance
was allocated to Middle Eastern countries, with Iran the largest single
aid recipient and the UAR second. East European countries extended
a record $501 million of new aid during 1965. The USSR extended
$659 million, more than 80 percent of which was designated for
CENTU countries. Communist China was the smallest aid donor
during the year, extending only $62 million in economic credits, com-
pared with its record commitments of $338 million in 1964. New eco-
nomic aid continued as in the past to be most heavily committed to
the industrial sector of the economies of less developed countries,
while an increasing allocation of aid to commodity imports reflected a
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I- I
growing Communist awareness of the need to generate local currency
to implement the aid program more effectively.
Drawings on Communist aid in 1965 are estimated to have totaled
about $455 million (a decline of about 15 percent from the 1964 level). bringing total Communist deliveries since 1954 up to $2.6 billion at
the end of 1965. Concurrent with the rise in aggregate drawings, the
net indebtedness of the less developed countries for economic aid to
the USSR and to the countries of Eastern Europe increased to about
$2 billion by the end of 1965. In 1965 the less developed countries
were scheduled to repay an estimated total of $115 million for prin-
cipal and interest on Soviet credits and approximately $45 million on
credits from East European countries. As in 1964, there was evidence
that a number of aid recipients were unable to meet these heavy re-
payment obligations, and concessions were made in some cases to
allow deferment of current debt service payments. In addition, softer
terms on new credit extensions were requested, and new assistance.
especially by the countries of Eastern Europe, generally allowed longer
repayment periods. Even if future aid program deliveries were to
remain at current levels, annual debt repayments on credit extensions
would increase at a rate of between 25 and 30 percent a year and
thus will be a growing problem.
Economic Technicians
The technical assistance program continued apace with almost 18,000
Communist economic technicians employed in less developed coun-
tries during 1965, an increase of 30 percent over the previous year.
sharp expansion in the number of Chinese Communist technical per-
sonnel accounted for most of the increase and reflected the accelerated
pace of Chinese project activity in Guinea, Mali, and Yemen as well
as the labor-intensive character of Chinese aid activities. Approxi-
mately two-thirds of all Communist technical personnel in the less
developed countries were employed in Afghanistan, Algeria, Guinea,
India, Mali, Nepal, and the United Arab Republic (UAR). In the
UAR alone there were nearly 2,500 Soviet technicians, 1,500 of whom
were engaged in construction of the main dam and the electric power
grid system eventually to be fed by the Aswan High Dam. About
2,100 Chinese were employed in Guinea and Mali developing agricul-
tural areas and small-scale industrial facilities.
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Technical Trainees and Academic Students
As part of the program to increase the technical proficiency of per-
sonnel in less developed countries, almost 1,600 persons from these
countries went to Communist countries during 1965 to receive tech-
nical training. This brought the total number of persons who have
ndertaken this training since 1.956 to almost 11,000. These trainees
have included professional and managerial personnel and skilled tech-
nicians whose training is related primarily to the manpower require-
bnents for Communist-aided projects in their homeland.
Academic Students
During 1965, 1,765 students from less developed countries en-
a-a ffled in academic training programs in Communist countries. This
n camber represents a drop of approximately 36 percent from the pre-
eding year, which is also the third consecutive year in which a decline
has occurred. Continuing the pattern of the past, by far the largest
1rercentage of new enrollees went to the USSR and, as in recent years,
most of the new students were from African countries.
Military Credits and Grants
Communist countries extended at least $187 million of military aid
w' o less developed countries during 1965, bringing the total of such
:assistance extended since 1955 up to $4.3 billion. The USSR, which
has provided 87 percent of total Communist military aid to less de-
Veloped countries since the beginning of the program, continued to be
r lie chief supplier in 1965. Although new aid commitments in 1965
were considerably below the near-record level of 1964, the USSR and
Czechoslovakia each concluded important new agreements with India;
or addition, the USSR concluded agreements with Algeria, Congo
Brazzaville), Ghana, Guinea, Indonesia, Uganda, the UAR, and
Yemen. Minor credits were extended by Bulgaria to India and by
Communist China to Cambodia.
Military Technicians and Training
As materiel deliveries under old agreements continued at a high level
in 1965, the number of military technicians sent to assist in the as-
sembly of equipment and to instruct in its use rose to 3,870, an increase
of 17 percent over 1964. Afghanistan, Algeria, and India accounted
for the largest part of the increase although most of the other military
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aid recipients also employed more technicians in 1965 than they had
in the previous year. During 1965, 2,720 nationals from 15 less de-
veloped countries enrolled in military training programs in Com-
munist countries, primarily in the USSR. Since the start of the pro-
gram, nearly 21,000 persons have received such training, and 4,355
still were being trained at the end of 1965. Indonesia has accounted
for more than -40 percent: of the total number trained, and five other
countries-Afghanistan, Algeria, Iraq, Syria, and the UAR-have ac-
counted for another 45 percent.
Trade
At the meetings of the United Nations Conference on Trade and
Development in 1965, the Communist countries continued to avoid.
precise commitments to the less developed countries on grounds that
the responsibility for the present economic plight of these countries
rests with the "imperialists." In place of substantive undertakings, the
Communist countries reiterated many of the same themes that they
had presented at the Geneva Conference in 1964. In general, the
less developed countries remained unimpressed by these Communist
propaganda claims, realizing that the Communist area cannot match
the developed countries of the Free World in fulfilling their trade and
development needs.
Foreign trade turnover between the Communist and less developed
countries during the first half of 1965 amounted to $1.9 billion, or
roughly 15 percent above the corresponding period of 1964. This
expansion was accounted for primarily by increased Soviet and East
European trade with the less developed countries. In 1964, total Com-
munist trade with these countries increased 12 percent over 1963 to
$3.6 billion. The growth during 1.964 was accounted for by increased
East European and Chinese Communist trade. Soviet trade with the
less developed countries in 1964 remained at the 1963 level of $1.4
billion, primarily because of a decline in Soviet imports of rubber and
cotton and a leveling off of Soviet exports under long-term economic
credits. The geographic distribution of Communist trade with the less
developed countries during the first half of 1965 followed the pattern
of 1964, concentrating on Asia and the Middle East in general and
on India and the UAR in particular. In 1964 the commodity composi-
tion of trade between Communist and less developed countries showed
some variations from earlier years. The share of food products in total
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Communist imports rose from 27 to 39 percent of the total, while crude
materials declined from 60 to 45 percent. In the case of Communist
exports, the most striking feature was the rise in the importance of
machinery and equipment, which now accounts for two-fifths of total
Communist exports to less developed countries, compared with one-
third in 1963.
Africa
Communist relations with African countries during 1965 were high-
lighted by a low level of new economic aid commitments; by some
sharp setbacks for Communist, particularly Chinese, policies in Africa;
and by a general decline in overt Sino-Soviet competition for influence
in African countries. Only $99 million in new aid was extended dur-
ing the year, a precipitous drop from the peak annual level of $348
million in 1964. The USSR did not conclude any major agreements
in. 1965, compared with $215 million extended to African countries dur-
ing the previous year.
The overthrow of Ben Bella in. Algeria and the assumption of power
by the Boumedienne regime ended the use of that country as a forum
for Communist, especially Soviet, propaganda. The Afro-Asian
(Bandung II) Conference, avidly sought by Communist China as an
instrument for expanding its influence among participating countries,
was canceled. In spite of these policy reversals, however, Communist
aid activities, particularly military, continued, and a Boumedienne
visit to Moscow in December served to assure the continuance of So-
viet programs in Algeria.
No new Communist aid commitments were made to Congo (Brazza-
ville ), but some progress was noted under existing Soviet and Chinese
credits. The favorable Chinese position in the Central African Re-
public (CAR) came to an abrupt end with the overthrow of the
Dacko government and the CAR's severance of diplomatic relations
with Communist China. Morocco was the recipient of the largest
Communist credit extended to an African country in 1965, $30 million
from Poland. Nigeria received its first economic aid credit from a
Communist country with the acceptance of a $14 million credit from
Czechoslovakia.
Ghana was the recipient of a $20.2 million credit from East Ger-
many, and President Nkrumah announced his decision to initiate dis-
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cussions with the USSR for the construction of a $100 million hydro-
electric dam at Bui. Guinean President Tour' visited the USSR and
Hungary and claimed that he had received Soviet assurances of as-
sistance for construction of the Konkour' dam and related aluminum
facilities. About 770 Chinese technicians were employed in Guinea,
mainly at the site of the Kinkon dam and at the Macenta textile project.
Mali also was host to a large number of Chinese technical personnel.
about 1,230 employed largely on agricultural and light industrial
projects. In Tanzania, Communist aid programs were characterized
by Chinese cash disbursements, a modest amount of East German con-
struction activity, and deliveries of Soviet military equipment.
Asia
Major Communist aid activities in Asian countries during 1965 gen-
erally followed the pattern of recent years. Construction activities
in Afghanistan and India continued at a high level, while the programs
in Ceylon and Indonesia reflected the usual confusion and lack of
satisfactory progress. Military aid, however, continued to be delivered
rapidly, concentrated in Afghanistan, India, and Indonesia.
Although Soviet construction projects in Afghanistan progressed
satisfactorily, the USSR also initiated action to ease some of Afghani-
stan's financial problems. Commodity credits were extended to gen-
erate local currency for Soviet projects, some debt payments were re-
scheduled, and the services of a number of Soviet technicians were
provided without charge, Soviet military aid activities also continued
at a high level. In March, Afghanistan accepted its first aid from
Communist China, a $28 million interest-free credit.
Burma was the recipient of only one Communist credit during 1965,
$10 million from Poland for the purchase of Polish industrial equip-
ment. Chinese construction activity continued to increase, and the
Kunlong bridge was opened to traffic in November. There was little
significant economic aid activity in Cambodia. Communist China
agreed to provide military equipment sufficient to equip about 10,000
Cambodian military personnel. A change in government in Ceylon
early in 1965 brought a shift in that country's foreign policy and an
effort to improve relations with the West. Prior to the election, East
Germany had extended a $42 million credit to Ceylon.
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India continued to search for substantial amounts of foreign eco-
nomic assistance during 1965 for its Fourth Five Year Plan, and two
high-level delegations traveled to Moscow to obtain Soviet aid. Prime
Minister Shastri's visit in May formalized the Bokaro steel mill agree-
ucent. In November, Finance Minister Krishnamachari reportedly
sought as much as $1.5 billion from the USSR for India's development
program. No specific Soviet commitments, however, have been made
public. Soviet military aid to India picked up in tempo after Septem-
ber with the signing of a $100 million agreement with the USSR for
naval equipment and an accord with Czechoslovakia for more than
250 medium tanks. The USSR delivered at least 6-and perhaps an
additional 10-MIG-21 jet fighters to India.
The abortive "coup" in Indonesia in September highlighted that
uuuountry's relations with the Communists. Relations with Communist
t ,'hina deteriorated rapidly as Indonesian military leaders became con-
vinced that the Chinese were implicated. All trade with China was
embargoed and Chinese economic technicians withdrawn. Indonesian-
Soviet relations, however, remained relatively unchanged. Military
deliveries continued, and a new agreement totaling $26 million was
signed in May.
Soviet and Chinese aid activities in Nepal continued to focus on
roadbuilding projects. Pakistan further expanded its relations with
the Communist countries, especially Communist China, during 1965.
A $60 million Chinese credit was formally signed in February, and
half the total was allocated for industrial installations. Soviet aid to
Pakistan totaled $50 million, largely for the import of machinery and
equipment.
Latin America
Latin American economic relations with Communist countries were
confined largely to trade. Large grain sales by Argentina to Commu-
nist China and the USSR, totaling at least $245 million, highlighted
such trade. In September the USSR extended a $15 million credit to
the Argentine oil industry. Brazil's foreign economic policies reflected
a cautious interest in expanding trade with the Communist countries.
An. agreement was concluded between the USSR and a private Brazil-
ian firm for an unspecified credit to construct a pilot plant for process-
ing shale oil. During the year, Communist China purchased 11,500
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metric tons of copper and 40,000 metric tons of sodium nitrate from
Chile, paying for these purchases in hard currency.
Middle East
Communist aid activities in the Middle East were highlighted by
major commitments to Iran and Turkey, an $84 million credit to a
Greek shipowner, and additional sizable aid commitments for the
UAR's Second Five Year Plan (July 1965 - June 1970). In Cyprus the
USSR completed its military aid deliveries under the September 1964
agreement (transshipped through the UAR, where some SAM equip-
ment still was in storage), and a number of Communist countries con-
cluded trade protocols designed to absorb much of Cypriot agricul-
tural surpluses. Trade between Greece and the Communist countries
remained at a high level. The USSR extended an $84 million credit
to a private firm for the purchase of Soviet ships with payment to be
made over a period of eight years in hard currency and Greek
commodities.
The USSR achieved a significant economic breakthrough in Iran
with the negotiation of a $290 million credit for the construction of
a steel mill, a machine tool plant, and a natural gas pipeline. The
credit will be repaid over 12 years at 2.5 percent interest in Iranian
commodities and natural gas. The pipeline will be built to carry gas
to the Soviet border, but the USSR apparently will not supply the
large-diameter pipe required for the line. Iran also accepted credits
from Czechoslovakia and Hungary totaling $25 million.
No new Communist credits were extended to Iraq, but the USSR
agreed to obligate part of its 1959 credit for the construction of a dam
on the Euphrates River and a tractor assembly plant. Syria was the
recipient of credits from East Germany totaling $29.7 million. A
defunct Polish credit of $15 million was revived and raised to $25
million. A new Soviet military agreement was signed with Yemen.
Turkey showed a willingness to expand economic relations with the
USSR. During an August: visit to Moscow, Prime Minister Urguplu
accepted a Soviet commitment to construct a number of plants in
Turkey under a credit unofficially placed at $200 million. Although
a new government emerged in October, Soviet surveys subsequently
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were initiated to determine the precise cost of seven projects which
may be undertaken. In December an agreement was announced by
Turkey, resulting from an official exchange of letters.
During 1965 an additional $255 million was extended by Communist
countries to the UAR, bringing to almost $900 million the total of
Communist aid commitments made during the past two years for the
UAR's Second Five Year Plan. Economic difficulties in the UAR,
however, compelled the regime to initiate a review of the develop-
ment program, resulting in the cancellation of a number of Soviet,
Czechoslovak, Polish, and Rumanian projects. In September a new
military aid agreement was signed with the USSR.
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CONOMIC AND MILITARY AID ACTIVITES OF COMMUNIST Ct U'
IN LESS DEVELOPED COUNTRIES OF THE FREE WORLD_
Selected Years, 1954-65
ECONOMIC AND MILITARY
TECHNICIANS
I 0 Military
D Economic
MILITARY AID EXTENDED
U Communist China
l Eastern Europe
113 USSR Milljon US Dolhrt
1000r-- -
STUDENTS DEPARTING FROM LESS DEVELOPED
COUNTRIES FOR TRAINING IN COMMUNIST
COUNTRIES
III Military
Technical
IW Academic
Data are revised periodically to include naw ;hfc n-1, 1.11
me _e e~
may not be camparoble with data prev+ausIy prr=anted
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ECONOMIC CREDITS AND GRANTS
BY COMMUNIST COUNTRIES
rO LESS DEVELOPED COUNTRIES OF THE FREE WORLD
EXTENSIONS AND DRAWINGS
1954-65
53151 2-66 CIA
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1AL Aft EXTENL7
$7,73x. Million
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ALLOCATION OF ECONOMIC AID BY COMMUNIST COUNTRIES
TO LESS DEVELOPED COUNTRIES OF THE FREE WORLD
BY END USE, Cumulative 1954-65
(percent of total)
*The component ports cannot be broken out sire = multipur arse
projects include dams that contribute to both i i ugricuiFc,rai
sector and to the generation of electricity.
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hi urea
Scheduled Repayments to the USSR and Eastern Europe
by Less Developed Countries of the Free World
for Economic Aid Drawn
1957-65
Million US Dollars
180
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Next 1 Page(s) In Document Exempt
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Trade of Communist Countries with Less Deveioped
Countries of the Free World, 1955-64
and Percentage Distribution, 1964
Excluding $11.1 million of trade with '>ourhern A odesio a
Zambia which cannot be distributed by Commu nit croup: r
Argentina
Ceylon
Brazil
Greece
United Arab
Republic
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TRADE OF COMMUNIST COUNTRIES WITH LESS DEVELOPED COUNTRIES
OF THE FREE WORLD, BY COMMODITY GROUP,* 1962-64
EXPORTS BY COMMUNIST COUNTRIES
USSR
OTHER
CRUDE MATERIALS
MACHINERY
AND TRANSPORT
EQUIPMENT
1962 1963 1964
Eastern Europe
1962 1963 1964
46% 37% 41%
1962 1963 1964
B%
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USSR 100%
1964
Qato for the USSR are from official Soviet trade yearbooks. Data for
Eastern Europe and Communist China are based on $ ade r as
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