WARSAW PACT ECONOMIC AID TO NON-COMMUNIST LDCS, 1984

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• Publication Date: December 1, 1985
• Content Type: REPORT

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Directorate of _SrCTet_
Intelligence
Warsaw Pact Economic Aid to
Non-Communist LDCs, 1984
RTT Production Group
PERMANENT FILE COPY
G185-10308
December 1985
"r 508
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Directorate of
Intelligence
Non-Communist LDCs, 1984
Warsaw Pact Economic Aid to
Subversion and Instability Center, OGI,
This paper was prepared byl (Office
of Global Issues. Comments and queries are welcome
and may be directed to Foreign
Development.
The substance of this report has been coordinated
with the Bureau of Intelligence and Research,
Department of State, the Defense Intelligence
Agency, and the Agency for International
Secret
W NS-/03ON
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Warsaw Pact Economic Aid to
Non-Communist LDCs, 1984
Preface The data on economic agreements reflect the latest information available
and supersede information in our previous publications.
For the purpose of this report, the term Communist countries refers to the
USSR and the following countries of Eastern Europe: Bulgaria, Czechoslo-
vakia, East Germany, Hungary, Poland, and Romania.
The term less developed countries includes all countries of Africa except
the Republic of South Africa; all countries of East and South Asia except
Hong Kong and Japan; all countries in Latin America except Cuba; and all
countries in the Middle East except Israel. Data include about $50 million
in aid to Cambodia and Laos, provided before they became Communist in
1975 and reported for historical reasons.
The term Marxist client states refers to countries that have identified
themselves as Marxist-Leninist and that rely primarily or entirely on
Communist military support to maintain their power. They are Afghani-
stan, Angola, Ethiopia, Mozambique, Nicaragua, and the People's Demo-
cratic Republic of Yemen (South Yemen).
Within the aid context, the terms agreements, commitments, extensions,
and pledges refer to promises to provide goods and services, either on
deferred payment terms or free of charge (grants). Assistance is considered
to have been extended when accords are initialed and constitute a formal
declaration of intent. Credits with repayment terms of five years or more
are included in economic aid totals. These credits are designated as "trade
credits" if amortization is less than 10 years. Concessionary aid includes all
grants and credits with repayment periods exceeding 10 years. The terms
drawings, disbursements, and deliveries refer to the delivery of goods or
the use of services.
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Summary
Information available
as of 31 October 1985
was used in this report.
Warsaw Pact Economic Aid to
Non-Communist LDCs, 1984 [
Communist economic aid programs in non-Communist countries in 1984
continued to recover from the retrenchment of the early 1980s, when
Warsaw Pact leaders were reexamining the question of where to place their
limited aid resources for maximum political and economic effectiveness.
New Warsaw Pact economic commitments in 1984 reached nearly $4
billion (double the levels in 1981 and 1982, and their highest total since
1980). At the same time, aid deliveries under both old and new agreements
climbed to a record $2.2 billion. 25X1
In 1984, Moscow's $2.1 billion of assistance was concentrated on five
countries (Afghanistan, Ethiopia, Guinea, Iraq, and Syria) that absorbed
95 percent of the new commitments. The USSR's concessional aid, mostly
to Marxist client states, accounted for about 40 percent of the new
commitments, while the more profitable trade credits provided to tradition-
al recipients on somewhat harder terms claimed a record 60 percent of new
25X1 extensions. East European countries, whose pledges have never had the
ideological cast of the Kremlin's offerings, provided most of their record
$1.7 billion of new aid for equipment sales to non-Communist LDCs. F_
Personnel exchanges remained key elements in Warsaw Pact economic
programs in 1984. Nearly 126,000 Soviet and East European economic
technicians were employed in non-Communist LDCs under a program that
has grown every year since 1970. More than 100,000 of these personnel
were stationed in North Africa and the Middle East (where hard currency
receipts from technical services are most substantial); another 16,000 were
in Marxist client states at virtually all levels of their economic establish-
ments. Similarly, LDC student enrollments in Soviet and East European
universities in 1984 rose to more than 90,000. F__~ 25X1
Because the Soviet program is primarily a political effort, it continues to
enjoy some advantages over Western programs, which adhere more closely
to basic economic criteria in allocating aid. By dealing with Moscow,
LDCs can sometimes:
? Obtain project funding when their debt problems or economic prospects
make them poor credit risks.
? Obtain construction loans below market rates.
? Sidestep economic and monetary reforms that Western donors often
insist on.
? Repay in goods. 25X1
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For most countries, however, Warsaw Pact aid remains irrelevant to their
development needs. Basically designed to penetrate a few key countries,
Warsaw Pact programs in 1984 continued to be:
? Focused on industrial development, providing little in the way of disaster
assistance. Only about $20 million of food aid was provided outside
Afghanistan.
? Repayable on hard terms; only $350 million in new pledges (less than 10
percent) were grants.
? Tied purchases of Communist goods and services.
? Small in size, representing less than 10 percent of annual international
aid flows.
? Loaded with costly extras, such as hard currency charges for technical
services (which Western countries usually provide free), and high cost
follow-on services and spares to Soviet-built projects.
Nonetheless, even as the USSR tried harder to increase earnings from aid
programs, there were further signs in 1984 that costs associated with the
program (at least in the short term) are rising. The growing dependency of
the troubled economies of Afghanistan, Ethiopia, and Nicaragua on Soviet
aid is draining half a billion dollars annually from the Soviet economy that
probably will never be repaid. Factors that shrank Soviet earnings
included:
? Substantial credits from the USSR to finance development contracts in
countries such as Iraq and Libya, which used to pay cash for Soviet
equipment and services.
? Credits and subsidies for oil and other commodities to Soviet client
states, such as Ethiopia, Mozambique, and Nicaragua, for the first time.
? Debt reorganization that deferred at least $1 billion in payments due in
1984 for many LDCs, such as Afghanistan, Mozambique, Madagascar,
Peru, and others.
It is too early to say whether these patterns signal permanent changes in
the character of the Soviet program in non-Communist LDCs. Neverthe-
less, we are fairly certain that for political reasons Moscow must continue
its support to Marxist clients. We have not yet seen any indication that
Gorbachev intends to cut this program over the near term. The program in
non-Communist LDCs, which has generally been profitable, may even be
expanded as the new leadership seeks to increase economic returns from
LDCs.
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Preface
iii
Summary
v
Introduction
I
USSR: A Quiet Anniversary
3
A More Expensive Program for Moscow
3
Financing Development in Non-Socialist LDCs
4
Budgetary Support to Socialist States
5
The Soviet Record on Food Aid
5
Eastern Europe: Trade-Oriented Credits Reach New High
6
Disbursements Still Rising
7
Technical Services: Continuing LDC Demand
8
Academic Training: A Basic Penetration Tool
9
An Uncertain Future
11
An Alternative Source of Financing
12
Regional Developments
12
Middle East and North Africa
12
Algeria
14
Egypt
14
Iran
15
Iraq
15
Libya
16
Morocco
16
People's Democratic Republic of South Yemen
17
Syria
17
Yemen Arab Republic
18
18
Afghanistan
18
India
20
Pakistan
20
The Caribbean and Central America
21
Nicaragua
22
Guyana
23
South Americ
a
23
Argentina
24
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Brazil
25
Colombia
25
25
26
Ghana
29
Mali
29
Mozambique
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Warsaw Pact Economic Aid to
Non-Communist LDCs, 1984 F
strategic raw materials.
As of January 1984, the USSR had been in the
economic aid business in the non-Communist Third
World for 30 years. Since Moscow provided its first
credits to its Asian neighbors in 1954, the USSR and
its allies have promised nearly $45 billion in economic
credits and grants to more than 70 less developed
countries: about $20 billion of this assistance has
actually been delivered. Together with military sales,
the Kremlin and Eastern Europe have used their
economic aid programs to replace Western influence
in LDCs, to expand trade, and to gain access to
Soviet economic aid has never had the dramatic
impact of the military program: it has been both
smaller in size and harder to implement. In the early
years, when some LDCs were reluctant to accept a
Soviet military presence, economic and military
pledges were roughly equal. The gap widened in the
mid-1960s and now, for every dollar in economic aid
delivered, Moscow has transferred nearly $6 worth of
arms. In contrast, East European countries have
always depended on economic ties to sustain LDC
relationships; economic aid pledges since 1955 have
exceeded military agreements by $2 billion. East
25X1 European aid programs have been designed almost
solely to finance equipment sales.
Personnel exchanges have become an increasingly
important component of Warsaw Pact relations with
LDCs and have provided good financial and political
returns in the form of hard currency earnings and an
increased Soviet presence. Technical services and
academic training programs have been broadly based
in 112 countries, including 45 which have not accept-
ed other forms of Communist aid.
Primarily fashioned to penetrate the economies of a
few key states, Communist aid has rarely addressed
the basic development needs of LDCs. The worsening
international economic climate has compounded the
economic problems facing most developing nations,
Figure 1
USSR: Composition of Economic
Aid to Non-Communist LDCs,
1980-84
Percent
Mining
I ransport
IIedv industre
Power
Irrigation
Multipurpose
35
exacerbating the failings of the Soviet economic mod-
el and driving even Moscow's staunchest allies, such
as Angola and Ethiopia, back to the West for aid. In
1984, as before, Warsaw Pact aid programs still were:
? Focused on industrial development, providing al-
most no food or other emergency relief to the
estimated 20 million people worldwide who are
faced with immediate starvation.
? Repayable on fairly stiff terms; only $300 million of
new pledges were grants.
? Politically oriented, going mostly to major Soviet
military clients, such as Iraq and Syria, and exclud-
ing more than 30 of the world's neediest low-income
countries.
? Small in size; Warsaw Pact aid to non-Communist
LDCs represents less than 10 percent of annual
international flows. 25X1
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Table 1
Communist Economic Credit and Grants
Extended to LDCs, 1984
Total
2,151
Sub-Saharan Africa
544
-
Angola
50
Ethiopia
-- -- -
268
Ghana
Guinea
Madagascar
9
Mali
Mauritius
Mozambique
4
Nigeria
Seychelles
22
Togo NEGL
Latin America 8
Total
Bulgaria
Czecho-
slovakia
East
Germany
Hungary
Poland
Romania
1,751
249
218
122
202
311
650
80___
---
22
48
10
]
2
2 -
- -
-- -
20
--- --
12
---
NEGL
8
-
11
10
NEGL
47
47
b
b
270
167
NEGL
12
31
10
50
a Because of rounding, components may not add to the total shown.
b An economic and technical agreement was signed which calls for
long-term economic cooperation without identifying the value of
assistance to be provided.
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Table 2
Warsaw Pact: Economic Aid to Non-Communist LDCs
Total
1954-78
1979
1980
1981
1982
1983
1984
Total
USSR
Eastern
Europe
44,920
30,005
14,915
26.065
16,570
9,495
4,445
3,800
645
3,930
2,605
1,325
1,325
600
725
1,575
1,015
560
3,680
3,265
415
3,900
2,150
1,750
Total
USSR
Eastern
Europe
20,660
14,050
6,610
11,185
7,675
3,510
885
580
305
1,130
815
315
1,345
860
485
1,840
1,190
650
2,120
1,440
680
2,155
1,495
660
The 30th year of Moscow's economic aid program in
LDCs passed uneventfully with $2.2 billion in new
pledges to 17 countries, all of them old aid clients and
most of them avowed leftists (table 2). About 95
percent of the aid was concentrated on five coun-
tries-Afghanistan, Ethiopia, Guinea, Iraq, and Syr-
ia. Trade credits (mostly to wealthier countries) used
to promote Soviet equipment sales rose to their high-
est proportion yet-60 percent-while concessional
aid was concentrated on Marxist client states that
depend on Soviet support to maintain their regimes in
power and to replace previous aid flows from the
West.
A More Expensive Program for Moscow
Even though Moscow has been very successful recent-
ly in concluding development contracts with middle
and high income LDCs on terms beneficial to the
Soviet economy, there were increasing signs in 1984
that the program, which has been self-sustaining for
two decades, is costing the Kremlin money over the
short term:
? Moscow provided at least $450 million in credits
(and possibly as much as $2 billion) to Iraq, which
used to pay cash for Soviet equipment and services.
The Iran-Iraq war and declining terms of trade for
LDC oil producers generally are forcing Moscow to
provide more deferred financing for equipment
sales to retain markets in formerly wealthy Middle
Eastern countries.
? The USSR, for the first time, provided oil on credit
to Madagascar, Mozambique, and Nicaragua, and
continued its oil subsidy to Ethiopia. Until the
1980s, oil assistance had been absent from the
Soviet program.
? Moscow rescheduled or restructured debt payments
for Afghanistan, Mozambique, Madagascar, and
Peru, and negotiated new debt relief with Ethiopia
and Zambia.0 25X1
Moscow's commitment to its Marxist client states is
responsible for raising the cost of maintaining Soviet
economic influence over the past five years. During
this period, the USSR has been forced to provide
several hundred million dollars annually of commod-
ity support to client states free of charge. Until the
late 1970s, Moscow relied on large industrial projects
to attain the objectives of its program. The new
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Table 3
USSR: Economic Aid Extended
to Non-Communist LDCs
Marxist
Client
States
Other
LDCs
Total
30,005
1954-78
16,570
1,715
14,855
1979
3,800
975
2,825
1980
2,605
1,185
1,420
1981
600
220
380
1982
1,015
940
75
1983
3,265
670
2,595
1984
2,150
655
1,495
Marxist clients of the 1980s, however, have not been
able to absorb Soviet aid to heavy industry. The
growing dependence of the troubled economies of
Afghanistan, Ethiopia, and Nicaragua in the past few
years on Soviet commodity and development aid
amounting to nearly half a billion dollars a year is the
largest drain Moscow's command economy has ever
experienced from the economic program.
In 1984, development credits to Middle Eastern Arab
countries (a traditional focus of Soviet efforts) were
double the more concessional assistance provided to
Marxist clients (table 3). Still, Moscow was generous
to its Marxist allies, maintaining new aid commit-
ments above the $600 million level.
Major allocations in 1984 included:
? $820 million to Syria for oil and gas drilling rigs, a
dam and power plant, and extensive railroad
construction.
? $450 million to Iraq for power projects.
? $325 million to Afghanistan for commodities and
consumer goods.
? $270 million to Ethiopia for agricultural develop-
ment and commodities.
? $165 million to Guinea to finance fishing, agricul-
tural, and bauxite projects.
Financing Development in Non-Socialist LDCs
In the 1980s, Moscow has largely pursued a tight-
fisted policy of extracting maximum returns from its
economic programs in nonsocialist countries, which
still make up the bulk of its aid clientele in spite of
recent increased support to Marxist clients. Agree-
ments have been characterized by shorter grace and
repayment periods, higher interest rates, and hard
currency repayments. In 1984, Moscow's $1.3 billion
in new pledges to Iraq and Syria demonstrated the
USSR's continuing keen interest in increasing its
access to the markets, as well as to the political
structures, of key Middle Eastern Arab states. The
USSR's $800 million allocation to Syria was its
largest ever to Damascus and continued Moscow's
long-term effort to increase its already pervasive
development presence in Syria, a major political
target in the Middle East. For Iraq, the USSR agreed
to fund new power projects as part of a Soviet-
designed plan to double Iraqi power output through
the end of the century.
These funds were provided as trade-type credits (table
4), carrying 10-year repayment terms with interest
ranging from 4 percent upward. In 1984 the propor-
tion of these credits in total LDC packages reached its
highest level yet, more than 60 percent of total
pledges. Almost all of these credits are repayable in
hard currency or strategic commodities, such as oil in
the case of Iraq and possibly Syria.
The agreements with non-Marxist countries fulfill
several important Soviet objectives by:
? Placing large numbers of Soviet economic advisers
in recipient countries, sometimes in influential
positions.
? Gaining access to new equipment markets and
strategic commodities.
? Increasing dependency for follow-on support to
Soviet-built enterprises in LDCs.
? Earning hard currency from both the initial sale and
associated technical services.
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Table 4
USSR: Aid Extended to
Non-Communist LDCs, by Type
Table 5
USSR: Relief Assistance
to Non-Communist LDCs
Trade
Concessional
Credits
Credits/Grants
Total
Afghanistan
Total
Afghanistan
Total
30,005
6,845
23,160
Total
1,150
940
545
445
1954-74
10,080
980
9,095
1954-74
75
50
1975
1,970
205
1,765
1975
20
7
1976
1,080
290
790
1976
5
4
1977
435
435
1977
3
2
1978
005
3
255
2
750
,
,
1978
2
2
1979
3,800
1,200
2,600
1979
30
25
30
25
1980
2,605
640
1,965
1980
315
310
158
155
1981
600
285
315
1981
30
27
30
27
1982
1,015
10
1,005
1982
65
25
25
25
1983
3,265
1,660
1,605
1983
380
350
120
112
1984
2,150
1,315
835
1984
225
200
115
100
For years, these programs have directly supported the
USSR's more concessional activities in socialist coun-
tries by providing a steady flow of hard currency and
raw materials annually as repayments for goods and
services.
economies.
Budgetary Support to Socialist States
Moscow's $655 million in aid to Marxist client states
in 1984 was slightly below allocations in the previous
two years, but all of it was provided on favorable
terms. The USSR also provided nearly $200 million
to hardcore African socialist countries, such as Guin-
ea and Mali, that have been longtime recipients of
Soviet economic and military assistance. The $655
million of concessional aid to client states included
$425 million for commodities such as petroleum, food
grains, and other items that represented an outflow of
goods from the Soviet economy. The new $165 million
allocation to Guinea is the largest the USSR has ever
provided to Conakry and may signal Moscow's intent
to pursue a more aggressive economic program to
prevent further deterioration in relations with this
longtime ally. Pro-Soviet socialist countries, such as
Congo and Mali, also are demanding more and better
Soviet aid; some, such as Guinea and Mali, are
turning to the West for assistance to rebuild their
The Soviet Record on Food Aid
In 1984, Moscow did not improve its poor record on
food aid to the array of nations whose populations are
facing starvation, in spite of seemingly dramatic
growth (from a very low base) in its relief program
over the past five years. Moscow provided only about
$15 million in food aid to African recipients in 1984,
while Western donations reached more than $1 bil-
lion. Afghanistan has received almost all of the
USSR's emergency assistance to compensate for the
withdrawal of Western support, while less than $5
million annually in Soviet food aid in the 1980s went
to the other 145 non-Communist LDCs. In contrast,
the United States provides about $1.4 billion annually
in food aid to developing countries, about half of it
free of charge (table 5).
Moscow has always been lukewarm about food aid
programs. The USSR has rarely been able to meet its
own grain requirements in the past 20 years without
large purchases in the West; and provision of free
grain and other food to LDCs requires an expenditure
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Other Limitations of the Program
Aside from Moscow's unresponsiveness to relief aid
needs, there are other features of the Soviet program
that make it incompatible with most LDC develop-
ment objectives and that limit its applicability:
? A focus on large industrial projects in the public
sector. Few LDCs have the infrastructure to absorb
Moscow's large steel or other mineral/metals pro-
cessing plants or massive hydropower installations.
These projects are difficult and expensive to main-
tain and operate, straining LDC financial and man-
power resources.
? No local cost financing. Most Soviet credits require
an equal amount of local currency to support
implementation, and budgetary constraints in many
countries put Soviet projects on the rocks long
before implementation is complete. For example,
the steel mill in Nigeria has ground to a halt
because of local financing problems. Only Afghani-
stan, Ethiopia, and Madagascar have received So-
viet commodities for sale on local markets to raise
funds for Soviet-sponsored projects.
? Tying of pledges to Soviet goods and services.
Soviet insistence on tying aid to Soviet goods and
services can often damage LDC interests. For some
types of projects (particularly in the oil sector),
Soviet technology lags far behind the West, but
Moscow generally refuses to purchase materials
and equipment from Western firms because they
require hard currency expenditures. This practice
of scarce hard currency, a move we have seen Moscow
taking only as a last resort. The Kremlin's feeble
response to the crisis in Ethiopia in 1984 dramatically
demonstrated its reluctance to confront the difficulty
and expense of mounting a large-scale relief effort
even when pressured by world opinion to help support
a close ally. Moscow's food contribution to Ethiopia's
estimated $950 million requirement totaled about half
a million dollars.
frequently results in a technologically inferior aid
package, with LDCs paying arbitrary prices for
Soviet goods because they cannot award contracts
on the basis of competitive bidding. In contrast,
Western countries are attempting to untie an in-
creasing proportion of their aid to allow LDCs to
take advantage of price and quality differentials.
? Hard currency charges for technical services. Mos-
cow demands up to $60,000 in hard currency
annually for many of the technicians it sends to aid
projects. These costs are not included in many
development credits. Cash-poor Ethiopia, for exam-
ple, is paying hard currency for Soviet technicians.
Most Western countries provide technical services
free or on long-term credits.
? Hard terms. Only about $2 billion of the USSR's
$30 billion program has been provided as grants,
and this has gone mostly to Marxist client states.
The best Soviet credit terms for other LDCs are 17
years to repay at 2.5-percent interest. Western
countries allow an average of 30 years to repay
loans at 3 -percent interest and generally provide
about one-third of their annual $40 billion in aid as
grants.
? Narrow focus. Ten countries have absorbed 70
percent of the USSR's aid, and 65 LDCs have
received no Soviet aid at all. Western countries
currently provide aid to more than 150 LDCs. I
Eastern Europe: Trade-Oriented
Credits Reach New High
East European programs showed surprising vitality in
1984, reaching a record level of $1.75 billion and
exceeding total pledges of the previous three years
(table 6). A higher level of pledges to large Middle
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Table 6
Eastern Europe: Economic Aid
Extended to Non-Communist LDCs
Table 7
Eastern Europe: Economic Aid
Extended to Non-Communist LDCs,
by Country, 1984
Marxist
Other Total
1,750
Client
LDCs Bulgaria
250
States
Czechoslovakia
220
Total
14,915
1,550
13,365
East German
120
1954-78
9
495
665
y
8,830
,
Hungary
200
645
95
550
Poland
310
1980
1
325
190
1,135
,
Romania
650
1981
725
175
550
1982
560
95
465
1983
415
270
145
1984
1,750
60
1,690
US representatives that only the West has the re-
sources needed to attack the problem of starvation in
Africa and elsewhere and that their governments have
no intention of providing more. 25X1
Because of rounding, components may not add to the totals shown.
See table 7 for details.
ana for power and other projects.
Eastern recipients was responsible for the growth in
the program. Romania, with a half-billion-dollar
credit to Pakistan for energy development, was the
largest donor; and, for the first time in four years,
Poland provided new assistance to several countries
(table 7). Most of the new trade credits went to
traditional customers to further Eastern Europe's
equipment sales. In addition to Romania's major
allocation to Pakistan:
? Poland provided $300 million to Turkey for a third
power plant.
? Czechoslovakia, East Germany, and Romania
pledged a total of $400 million to Egypt for Cairo's
new five-year plan.
? Bulgaria and Czechoslovakia allocated $160 million
in new credits to support projects in Syria.
? Bulgaria promised $150 million in credits to Guy-
Only about $50 million (3 percent) of Eastern Euro-
pe's 1984 aid was free of charge, all of it to Marxist
client states. East European countries have always
sought maximum returns from their economic pro-
grams by charging higher interest rates on their
project loans and keeping grant aid to a minimum.
Several East European diplomats privately have told
For the second year, Warsaw Pact economic disburse-
ments to non-Communist LDCs exceeded $2 billion,
more than two-thirds of them from the USSR. Pushed
by growing Soviet deliveries to Marxist client states,
annual disbursements to less developed countries have
nearly doubled since 1980. Grant aid for both the
USSR and Eastern Europe also set a new record in
1984, totaling more than $400 million (table 8).
About $400 million of the new Soviet disbursements
under both credit and grant agreements consisted of
commodities to support the economies of the client
states. This support of basic needs, mostly free of
charge, has had a dramatic effect on the nature of 25X1
Soviet aid deliveries over the short term:
? Commodity aid has risen to about 25 percent of
annual disbursements because it can be implement-
ed quickly. Disbursements under most project
agreements signed in the 1980s have not yet begun.
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Table 8
USSR and Eastern Europe:
Economic Aid Deliveries
to Non-Communist LDCs
Total
USSR
Eastern
Europe
Total Grants
Total
Grants
Total
Total
14,050 1,805
6,610
195
1954-79
8,255 430
3,815
60
1980
815 305
315
5
1981
860 200
485
25
1982
1,190 150
650
40
1983
1,440 335
680
20
Middle East
33,110
11,365
21,745
1984
1,495 385
660
45
South Asia
7
970
7
465
505
,
,
Table 9
USSR and Eastern Europe:
Economic Technicians
in Non-Communist LDCs, 1984 a
? Higher grant deliveries have raised the concession-
ary element in the Soviet program in the 1980s. In
1984, for example, grants more than offset the
effect of near-commercial terms for some 1984
disbursements, and we calculate the overall grant
element of Soviet deliveries in 1984 at about 40
percent. (In comparison, the far more generous US
program has a grant element of about 90 percent.)
We expect the Soviet grant element to drop back to
about 20 percent as new project deliveries
commence.
? Commodity deliveries have raised annual disburse-
ment totals to nearly $1.5 billion in the past two
years, half a billion dollars above usual levels. In
1984 the $1.5 billion delivered to LDCs offset an
estimated $1.3 billion in scheduled repayments from
them on long-term economic and military debt,
reversing the net flow of resources back toward the
LDCs for the first time since the mid-1970s.
Reschedulings have also contributed to this outflow
from the Soviets; we calculate that some $1.1 billion
of repayments originally due on LDC economic and
military debt were delayed by reschedulings in
effect in 1984. Most of these payments were due for
military goods and services from Marxist and other
socialist states.
From the Communist point of view, the brightest spot
in the LDC economic program probably was the
a Minimum estimates of number present for one month or more,
rounded to the nearest 5.
continuing growth of LDC demand for technical
services. In 1984, despite a small decline in Soviets
employed in LDCs (mostly in Iran and Libya), the
Warsaw Pact economic presence in LDCs continued
to climb to nearly 126,000 (table 9). Cubans, who
often support Warsaw Pact economic projects in the
Third World, numbered an additional 20,000. Soviet
and East European technicians in LDCs now outnum-
ber officially sponsored personnel from Western donor
countries by about 50,000 persons, according to offi-
cial Western statistics.
Since the mid-1970s, the provision of technical ser-
vices has been a key element in both the Soviet and
East European programs. For Moscow, it has been
one of the most direct economic methods to meet
several important Soviet objectives in the Third
World:
? In client states, which employed about 11,000 Sovi-
ets in 1984, Moscow has been able to exercise direct
influence over economic decision making by placing
advisers at the highest levels within the economic
establishment. In Afghanistan, for example,
Soviet advisers have been
assigned to most high-level economic officials and
office directors. The USSR also maintains high-
level economic advisers in Angola, Congo, Ethiopia,
Mozambique, and South Yemen.
25X1
25X1
25X1
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? In oil-producing states, we estimate that the USSR
earns about $150 million annually in hard currency
by providing development services not necessarily
related to aid projects, about half of its services
earnings from LDCs. In addition, Soviet experts
exert influence over oil development policies in Iraq
and Syria by acting as general contractors for oil
projects.
? By providing teachers and doctors free or at mini-
mal charge to poorer countries (such as Burkina,
Cameroon, and Togo), the USSR is able to maintain
a presence in 15 LDCs without the expense of a
major development effort.
toward future exploitation projects.
? Sending geologists to LDCs as part of a basic aid
package has enabled the USSR to inventory the
resources of 40 non-Communist LDCs, with an eye
The technical services program not only puts Soviet
personnel in target countries where presumably they
help further Moscow's political aims; it also is the
USSR's most profitable aid activity. We estimate
Soviet earnings in 1984 at $300 million from all non-
Communist LDCs for technical services. Over the
past few years, Moscow has renegotiated technical
services contracts with many recipients to bring salary
rates into line with international standards.
Table 10
USSR and Eastern Europe:
Academic Students From LDCs in
Training, December 1984
Total
USSR
Eastern
Europe
Total
92,950
57,485
35,465
North Africa
5,375
3,290
2,085
Sub-Saharan Africa
30,490
17,895
12,595
East Asia
205
125
80
Latin America
11,130
8,140
2,990
Middle East
31,395
16,580
14,815
South Asia
14,355
11,455
2.900
on scholarship awards.
25X1
in Warsaw Pact universities and other academic
institutions to an alltime high of 93,000 (table 10). As,
before, the USSR hosted nearly two-thirds of the 25X1
students at 400 schools throughout the Soviet Union
The largest contingent from non-Marxist states in 25X1
Soviet and East European institutions was from Jor-
Otherwise, the six Marxist-Leninist client 2
states took up nearly 23,000 of the scholarships,
nearly 25 percent of the Soviet total. Students from 25X1
African socialist countries-always a favorite Soviet
we estimate that $60,000 a year
gee camps.
is the norm for Soviet technicians employed in most
LDCs. We have noted very low rates of about $3,000
to $5,000 a year for technicians in some poor African
countries, but these low charges-once standard in
the Soviet program are now allowed only in excep-
tional cases. All recipients must pay at least half of
the salary in hard currency, a provision that strains
the budgets of many low-income recipients. Ethiopia,
for example, is paying hard currency even for Soviet
technicians associated with transporting food to refu-
We estimate that nearly 17,000 first-year students
from developing countries departed for the USSR and
Eastern Europe during 1984, bringing LDC enrollees
target for scholarships
places (10 percent).
Since the USSR began accepting foreign students
nearly 30 years ago, close to 120,000 LDC nationals
from 110 countries have traveled there for academic
training. According to our estimates, about 60,000
have returned home with some kind of Soviet academ-
ic degree.
Once home, many students have encountered dis- 25X1
crimination in the job market, or outright police
surveillance because of local suspicions about the
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subversive potential of a Soviet education. Acceptance
of Soviet academic credentials has varied widely by
region and country, and relatively few graduates of
Soviet universities have yet gained prominent posi-
tions. Western-educated personnel still receive prefer-
ential treatment in developing countries, but we are
beginning to see some advances by Soviet-trained
personnel in several areas:
? In Africa, with its endemic shortage of skills, most
returnees have been able to find employment in the
government, education, and press. US embassies in
20 African countries report that Communist-trained
officials hold responsible government positions (up
to cabinet level), particularly in Angola, Burkina,
Congo, Ghana, Guinea, Mali, Niger, Sierra Leone,
Uganda, and Zambia. President dos Santos of An-
gola holds a degree in petroleum geology from a
Soviet university. Generally, however, most African
returnees have not espoused Marxist beliefs, and
many are committed anti-Marxists
? In Latin America, students from only a few coun-
tries have been able to overcome the stigma of an
"inferior" Communist education and associated
problems with recognition of their academic creden-
tials. In Bolivia, Ecuador, Guyana, and Nicaragua,
Communist trainees have attained ministerial posi-
tions; and in Panama they find jobs in the public
sector. In Colombia, the US Embassy reports that
medical students return poorly trained as physi-
cians, are not able to practice medicine, and often
find administrative positions in hospitals and univer-
sities where their mediocrity drives out qualified
personnel. Only Colombia and Peru report that
some trainees return with a Marxist outlook.
? In the strategic Middle Eastern/North African
region, the record of Communist degree holders also
has been mixed. Only in Syria have Communist-
educated personnel become deputy ministers, uni-
versity vice presidents, and high-level ruling party
officials. According to the US Embassy, Commu-
nist-trained educators are beginning to dominate
Syrian university departments and faculties, and in
15 to 20 years may occupy most high administrative
positions. In the Maghreb countries and Egypt, no
Soviet graduates have reached policy-level posi-
tions. In Algeria, only 300 to 400 bureaucrats were
trained in the USSR, compared with 4,000 in the
United States-a trend expected to accelerate as
Algiers acquires more Western technology. Return-
ees from Communist countries are hired only as a
last resort in the Gulf states (except South Yemen),
according to US officials.
? In South Asia, local perceptions about the low
quality of education in Communist countries (espe-
cially compared with the West) have not precluded
returnees from employment in ministries, universi-
ties, think tanks, and other professions. Nonetheless,
we do not know of any who have reached positions
from which they can influence national policies.
The LDCs have benefited from Moscow's willingness
to fund the training of LDC nationals without de-
manding immediate tangible returns. The Warsaw
Pact's educational programs have been the most
broadly based and generous of all their efforts. We
estimate that the USSR and its East European allies
spend the equivalent of half a billion dollars annually
to train students from developing countries. In return,
they want access to potential leaders from LDCs and
to personnel who may be willing to serve Communist
political and commercial interests in the future. For
example, the USSR cultivates relatives of prominent
Jordanians studying in the USSR with a view toward
gaining influence,
Students continue to be attracted to Communist
educational institutions by all-expense scholarships
and declining opportunities for government-sponsored
training in the West. Many countries, particularly in
Africa, are not able to finance scholarships as they
were in the past. This makes all-expense scholarships
in the East that include tuition, room and board, and
stipends hard to turn down. From the student's per-
spective, any advanced degree can lead to a more
comfortable future at home in government or
industry.
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aid policy in the next few years.
The Soviet aid program is entering a transitional
period with the transfer of power to a new leader most
Western observers agree is far more dynamic than his
recent predecessors. Although we have seen no basic
revisions in aid policy over the first six months of
Gorbachev's tenure, his intent to interact more ag-
gressively with the United States and his commitment
to reform the Soviet economy could signal changes in
the USSR.
Forces for change in Soviet aid programs are very
much alive among economists and other academics in
= the question of assuring adequate returns from
aid and trade relations with LDCs has assumed new
importance in the past two or three years because of:
? Difficulties in the Soviet economy (ranging from
labor shortages to the high cost of new investments
in extractive industries).
? Unresolved problems over how much Moscow
should rely on non-Communist trade flows and
comparative advantage.
? Increasing LDC demands for assistance.
The issue is now being debated publicly: an article
that appeared in May 1984 in a Soviet economic
journal maintained that, although Soviet credits until
the 1970s helped LDCs meet their needs, it now is
time that credits meet Soviet export and import
requirements. According to the article, the future
growth of credits to the Third World depends on the
extent to which aid to LDCs can serve as an alterna-
tive to domestic investment by socialist states. Some
Soviet economists claim that the establishment of
economic structures in LDCs similar to those in
Communist countries (such as steel plants) has dam-
aged the USSR by creating competition in interna-
tional markets.
? Participation in tripartite economic ventures, in
which Western firms provide advanced technology,
the Soviets midlevel technology, and the LDCs
manpower and raw materials.
? Soviet-LDC cooperation within third countries, such
as the recent Brazilian-Soviet deal to construct a
hydropower project in Angola. 25X1
? Production sharing, in which the USSR would
invest in facilities in poor LDCs to produce raw
materials and food too expensive to produce in the
USSR, and labor-intensive goods (such as textiles)
for the Soviet market. 25X1
? Reducing concessional relationships with countries
such as India, where imports from the USSR 25X1
(including oil) are paid for in rupees, subsidizing
competition on international markets, according to
some Soviet theorists.0 25X1
Only aid to Marxist-Leninist client states would be
jeopardized by putting the Soviet program completely
on a paying basis. Economic support to these countries
costs the Soviet economy about half a billion dollars
annually. We believe, however, that Moscow will
continue to meet this commitment to maintain its
credibility with the international Communist move-
ment and its influence within these Marxist LDCs. In
1985, Gorbachev promised to supply Nicaragua's oil
requirements on credit, an unusual concession for
Moscow. Ethiopia, Madagascar, and Mozambique
also are receiving balance-of-payments support in the
form of oil subsidies and credits. Projects currently on
the drawing boards such as hydropower schemes in
Nicaragua, agricultural development in Ethiopia, and
oil exploration in South Yemen-almost certainly will
go forward as planned. 0 25X1
We anticipate few changes in the economic effort in
nonsocialist states, which have benefited the Soviet
economy for more than a decade with raw materials
and hard currency flows and fast-growing Soviet
machinery and equipment exports. Moscow continues
to try to exploit potential markets in nonsocialist
countries by offering new product lines and more
Under pressure from the regime to develop practical
solutions to economic problems, Soviet economists
have recently endorsed a number of suggestions to
improve economic returns from LDCs. These include:
? Joint ventures with wealthier LDCs, hinting at
possible Soviet equity participation that would as-
sure the Soviet side timely production and delivery
of certain products.
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creative financing. For example, several LDCs-
notably India, Iraq, Pakistan, Syria, and Turkey-
have received Soviet offers of nuclear power plants,
which could carry credits of up to $2 billion each.
Moscow has also adjusted to dislocations in oil mar-
kets and plunging world prices by revising contract
terms for major Middle Eastern customers. For exam-
ple, Iraq, accustomed to paying immediately for
Soviet equipment and services, has received nearly
$1.5 billion in Soviet credits in the past two years. The
USSR may provide similar funds to Libya, and
possibly Iran, if political relations improve. Moscow
already has upward of $10 billion worth of develop-
ment contracts under negotiation with nonsocialist
countries and will push hard for their successful
conclusion over the next two or three years.
Personnel exchanges will he key elements in Soviet
economic penetration through the 1980s. We have not
seen substantial dissent in the USSR over the meth-
ods and objectives of Soviet personnel programs in the
Third World. Soviet economic officials will continue
to sell technical services in spite of labor constraints in
some industries because of their quick hard currency
return, and scholarship offers will most likely contin-
ue their steady growth.
An Alternative Source of Financing
In spite of the multiple disadvantages of the Soviet
program for most poorer countries (except client
states), the overwhelming need for development fund-
ing keeps LDCs coming to the Soviets for aid. The
USSR manages to sign at least a billion dollars worth
of new agreements with LDC recipients each year
because its program still enjoys a few advantages over
some Western efforts and because it is a political
program that often overlooks internationally recog-
nized economic criteria. By dealing with the USSR,
LDCs can sometimes:
? Gain additional sources of project funding when
their debt problems or poor economic prospects have
disqualified them or made them poor risks by
international banking standards.
? Fund entire projects with one donor under Soviet
turnkey construction arrangements where the
USSR provides equipment and services; makes all
local arrangements, such as purchasing land, hiring
local contractors; and acts as general manager for
all phases of project implementation. Most
Western-financed construction projects have a
number of donors and must he managed by the
LDC.
? Obtain construction loans at below market rates.
For example, the World Bank (which funds con-
struction projects similar to Moscow's) has com-
manded repayments over 10 to 15 years at 7.5-
percent interest.
? Sidestep Western-imposed economic and monetary
reforms. For example, many Western donors make
aid contingent on the LDC recipient's implementa-
tion of IMF recommendations. The USSR makes no
similar demands.
? Repay in goods, such as strategic raw materials and
agricultural products, under buy-back and other
special financing arrangements. Western aid institu-
tions do not accept goods.
With the international demand for aid skyrocketing,
Moscow can be assured that any well-formulated aid
proposal with clear economic advantages will proba-
bly be acceptable to most LDCs.
Middle East and North Africa
Communist countries committed a record $2 billion in
economic credits to Arab countries in 1984, underlin-
ing the pivotal role that this area has traditionally
played in Moscow's Third World policies. For the
USSR, the identified $1.3 billion' of new credits
marked renewed attention to Middle Eastern clients
over the past 18 months after several years of relative
stagnation as Marxist clients in other areas competed
' In addition to the $1.3 billion in new agreements, the USSR
pledged $1 billion to Iraq in 1984 under a 1983 agreement. It also
was reported in the international press that Iraqi credits in 1984
could total $2 billion, but we have identified only $450 million in
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Figure 2
Middle East and North Africa:
The Warsaw Pact and Cuban Economic Presence, 1984
Economic Technicians:
The T'rendline
Fast Europeans
Soviets
I-J Cuhans
t hou' ands of persons
Gy ' CVPRUSJ
LEBANON
SRAEL/
P.DR. Y.-PEOPLE'S DEMOCRATIC REPUBLIC OF YEMEN
U.AE. -UNITED ARAB EMIRATES
V.A.R. -YEMEN ARAB REPUBLIC
Technicians present
New aid agreement
signed in 1984
for scarce aid resources (table 11). For Eastern Eu-
rope, the $880 million in new agreements far exceed-
ed commitments in any previous year. Middle Eastern
countries received all of the new assistance, while in
North Africa the focus was on implementing some $4
billion in previous economic agreements.
low prices and
liberal terms have made Communist contract propos-
als more attractive than before to Middle Eastern
countries whose economies are being drained by de-
clining oil revenues and continuing high military
expenditures. Communist countries offered credits
with 10- to 15-year repayments in oil and other goods
to oil-producing clients from whom they previously
demanded cash payments. The new flexibility in
Communist financing is promoting an upsurge in
business for Warsaw Pact countries in the Arab
world, and for the USSR it is serving to reassure
clients about continuing political support as well: 25X1
? Moscow's $820 million commitment to Syria-its
major Middle Eastern ally-demonstrated its con-
tinuing support for the hardline regional policies
espoused by Damascus.
? The $450 million in new commitments to Iraq
(reported to be as high as $2 billion) and an
agreement to begin site selection for a nuclear
power plant were part of Moscow's show of support
to Iraq in its continuing war with Iran.
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Table 11
Middle East and North Africa:
Economic Credits and Grants
From Warsaw Pact Countries
Extended
Drawn
Extended
Drawn
Total a
15,080
5,490
6,910 b
3,720
1958-70
3,015
1,515
1,625
465
1971-79
8,200
2,460
3,335
1,800
1980
525
225
675
150
1981
160
245
250
250
1983
1,910
345
50
355
1984
1,275
400
880 b
345
Because of rounding, components may not add to the totals shown.
b Includes $250 million in new commitments not shown in the
statistical handbook for 1984.
? Egypt was the surprise recipient of more than $400
million of East European project aid, although its
exchange of ambassadors with the USSR has not
fostered a similar increase in Soviet pledges. F_
In addition to actual aid pledged, Warsaw Pact
countries were discussing an additional $8 billion of
projects that we expect will require financing in the
next two years. Libya and Iran may also become the
beneficiaries of some funding for multibillion-dollar
projects as they seek Communist development con-
tracts on terms that will save them foreign exchange.
Libya, for example, may need help in financing the
proposed $4 billion Soviet-built nuclear power plant,
and Iran is considering Soviet participation in alumi-
num and oil projects.
In spite of reduced hard currency incomes and unset-
tled economic conditions, economic relations with
Middle Eastern and North African states continued
to be the most profitable for Communist countries in
terms of hard currency earnings and resource flows.
As a spinoff from its aid programs, the USSR has
developed a highly profitable trade in Near Eastern
oil. In 1984, we estimate that the USSR took 282,000
barrels per day (b/d) of crude oil (sometimes reluc-
tantly accepted as debt repayments) and reexported it
for more than $2 billion in hard currency.
Algeria. Algeria's more moderate voice in interna-
tional forums, as well as its concentration on domestic
development, is leading toward closer cooperation
with the West on technology transfer and trade issues,
according to the US Embassy in Algiers. These
factors, combined with a lack of Communist economic
initiatives, are eroding Moscow's influence in this key
nonaligned state.
Communist countries did not commit any new aid to
Algeria's $100 billion, five-year development plan in
1984, after a banner year in 1983 that saw a record
number of Algerian contract awards to Warsaw Pact
countries. Nonetheless, more than 10,500 personnel
(about evenly divided between the USSR and East
European contingents) were working on projects under
more than $1 billion in outstanding credits from
earlier years. Major projects being implemented with
Soviet assistance were the Alrar-Hassi R'Mel gas
pipeline and the High Plateaus railway, for which the
Soviets provided $250 million in credits in 1983.
Soviet technicians also were constructing four dams
and began surveys for a 500,000-ton cement plant.
East Europeans were constructing 30,000 housing
units, training centers and schools, and agricultural
projects.
Egypt. Egypt was the largest Middle Eastern benefi-
ciary of East European funding for development in
1984. The $450 million of new pledges included:
? $70 million from Czechoslovakia for the building
materials industry.
? $100 million from East Germany for a number of
infrastructure projects.
? $150 million from Hungary for a 300-megawatt
(MW) thermal power plant.
? $100 million from Romania for electrification pro-
jects in Egypt's current five-year plan. Bucharest,
Cairo's most active East European donor, also
agreed to construct a phosphate complex, two chem-
ical plants, and 60 agricultural mechanization
stations.
25X1
25X1
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Poland also was actively seeking construction con-
tracts during 1984 but was hampered by its inability
to offer credit facilities acceptable to Cairo. The new
agreements brought East European credits to nearly
25X1 $1.8 billion-well above Moscow's total commitment.
rural electrification projects.
There was no corresponding upturn in Soviet econom-
ic relations resulting from the exchange of ambassa-
dors in 1984. Among the positive developments during
the year, however, was a mutual agreement to reopen
discussions (suspended since 1977) on Egyptian repay-
ment of its military debt to the USSR. Moscow also
agreed to allocate about $12 million of old credits to
Iran. Iran attempted to improve economic and politi-
cal relations with Communist countries in 1984. but
increasing Iraqi military activity and disputes about
Moscow's withdrawing Soviet technicians from Ahvaz
marred Soviet-Iranian economic relations in 1984.
the Soviets
good faith.
hesitate to draw closer to Iran until the government
makes concrete policy concessions to demonstrate its
Esfahan steel mill.
As a consequence, the trend line in Soviet-Iranian
economic relations continued downward in 1984. The
number of Soviet technicians in Iran dropped by half,
and trade fell by nearly 50 percent to its lowest level
since 1980 ($595 million) because the USSR was
unable to implement projects at previous levels be-
cause of the war. Nonetheless, the USSR was still
able to:
? Finish work on the first stage of the 800-MW, $450
million Esfahan power plant in September.
? Maintain power output at the Ramin thermal power
plant, which supplies all of Khuzestan Province.
? Put the finishing touches on the second stage of the
East European countries maintained their supply of
consumer goods to help alleviate critical shortages in
the Iranian economy during the year. Most countries
also offered support for Iranian development projects,
but few agreements were signed because of the dislo-
cation in Iran's economy. Hungary offered to partici-
pate in Iran's $5.5 billion educational development
program, and Romania signed a $100 million contract
(terms unknown) to supply agricultural equipment and
offered to construct a new oil refinery. Tehran pays
for Communist support with oil, estimated to total
about 75,000 b/d in 1984,F____1 25X1
Iraq. New Soviet credits of $450 million and Mos-
cow's agreement to begin site selection for a nuclear
power plant were highlighted. Soviet-Iraqi economic
relations in 1984 underlined the Kremlin's intent to
maintain its economic foothold in Iraq. The USSR 25X1
expects eventually to sell and install a 440-MW
nuclear power reactor, although no final deal has been
Following lengthy negotiations, in the summer of
1984 the USSR agreed to a preliminary allocation of
$450 million in credits (possibly as part of a reported
$2 billion package). Project contracts that we have
identified under the new facility include:
? A 1,200-MW thermal power plant at Al Yusufiyah,
south of Baghdad.
? An 800-MW thermal power plant near Karkuk.
? Expansion of the Soviet-built Nasiriyah power
plant.
? An oil pipeline.
The new power plants, together with other Soviet-
built plants under construction, will double Iraq's
generating capacity, Othf25X1
Soviet projects on the drawing board include increas-
ing output at the Soviet-built Rumaylah oilfield by
15-20 million tons annually and managing construc-
tion of the thousand-kilometer trans-Iraqi gas pipe-
line, probably with funding to be agreed on later.=
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This new support package, together with the estimat-
ed $1 billion in assistance for the West Qurnah
oilfield under a 1983 agreement, makes Iraq by far
the Soviets' most active development partner in the
Middle East with $2.2 billion in credits. In addition,
Moscow's position as general manager of the trans-
Iraqi pipeline and several other petroleum industry
projects gives it influence beyond that shown by the
numbers alone. As general contractors, Soviet experts
plan, award subcontracts, procure equipment, and
handle the finances for many Iraqi undertakings. We
estimate that 5,500 Soviet technicians were in Iraq in
1984 working: on these and other development con-
tracts. Moscow's deepening economic and military
involvement in Iraq fostered a dramatic increase in
trade to $1.2 billion in 1984, stemming almost entire-
ly from Iraqi exports of oil to settle military and
economic debts. We expect this level to be sustained
through the rest of the decade as costly Soviet
development activities are implemented.
About 12,000 personnel from East European coun-
tries also remained in Iraq in spite of the war.
Bulgarian, East
German, and Romanian companies were the only
foreign presence in the oil industry in Iraq in 1984;
Baghdad terminated Western contracts because of its
hard currency shortage. East Europeans also were
extensively involved in agriculture and irrigation pro-
jects during the year. Toward year's end, Cuba also
tried to resurrect its lucrative contracting program in
Iraq by negotiating the return of some of the several
thousand personnel evacuated three years ago because
Libya. Periodic payment problems resulting from
military purchases continued to mar the Soviet-
Libyan economic relationship in 1984, but Tripoli was
able to cover most of its obligations with more than
100,000 b/d of crude oil valued at $1.4 billion that
the USSR sold to third countries for hard currency.
The growth in Soviet-Libyan economic and military
programs has pushed Libya to second place (behind
India) among the USSR's LDC trading partners with
exchanges close to $1.5 billion annually. However,
further growth may be curtailed by Libya's current
revenue squeeze that has already delayed the start of
a number of scheduled projects using Soviet equip-
ment and technical assistance. The largest project is
the proposed nuclear power plant at Surt. Estimates
on the value of proposed Soviet projects, including the
power plant, range as high as $5 billion. Other
projects include:
? New power transmission lines.
? The $3.8 billion Marsa al Burayqah-Misratah-Al
Khums gas pipeline.
? A steel plant at Misratah.
? Several fertilizer plants.
? Oil and gas field projects.
We estimate that about 4,500 Soviet personnel sup-
ported Libyan development programs during 1984.
The USSR also turned over the Tajura' nuclear
reactor, under construction for nearly 10 years, and is
supplying fuel for the new facility.
Libya is the major LDC employer of East European
personnel, according to our estimates, and is the
largest source of hard currency services earnings for
most East European governments. East European
companies maintained close to 50,000 workers in
Libya in 1984 under several billion dollars worth of
commercial contracts financed under Tripoli's current
five-year plan. Bulgaria was active in support of
Soviet military and economic projects, Poland worked
on road construction and agriculture, while Roma-
nians were building roads, public buildings, housing,
and schools. We believe Libya paid for most of these
services in oil during 1984.
Morocco. Soviet-Moroccan relations remained cool in
1984 in spite of the fact that Rabat is one of the
largest recipients of Soviet aid pledges under a $2
billion agreement signed in 1978 to develop the
Meskala phosphate deposits. In 1984, Moscow contin-
ued work on the mining project and also promised
technical support for shale oil exploitation at Tarfaya
and Timhadit, a fertilizer plant at Kenitra, and a
potable water plant at Beni Mellal. Moscow also
agreed to expand two Soviet-built hydropower plants
and increase cooperation in fisheries and public
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sectors.
Morocco, which has a long history of hiring Commu-
nist teachers and doctors, hosted about 2,300 econom-
ic technicians in 1984. Nearly 1,600 were from
Eastern Europe, dominated by contingents from Po-
land (700) and Bulgaria (500), working in all economic
USSR continued as Aden's main development partner
in 1984. About 2,000 Soviet personnel were in Ye-
men, working on power projects, fishing industry
development, and geological studies covering more
than 72,000 kilometers under some $500 million of
outstanding Soviet credits. The USSR also signed a
protocol in 1984 to exploit gold in the Hadhramaut
and submitted a general architectural plan to develop
Aden over the next 25 years. Work dragged on at the
50-MW Aden thermal power plant, where slow pro-
gress has been a source of considerable friction be-
tween the two countries. Startup of the first generator
is scheduled for 1985, according to the Yemeni press.
In addition to development aid, the Soviets provide
$100-125 million annually in balance-of-payments
support through the trade account. Most of South
Yemen's old Soviet debts also have been rescheduled
and probably will never be repaid.
Syria. The momentum in Communist-Syrian econom-
ic relations that we saw in 1983 continued through
1984. Warsaw Pact countries provided nearly $1
billion in financing for Syrian development in 1984, a
record commitment that raised the value of such
assistance to Damascus to $3.3 billion since the
program began in 1957. Moscow, in particular, rein-
forced Syria's position as the USSR's most important
Arab ally with $820 million of new credits. The 1984
pledges included:
? $120 million in credits from the USSR for four oil
and gas drilling rigs.
? $700 million to finance the Soviet-sponsored Nahr
al Kabir dam and power plant and reclamation, and
three new rail lines.
? $60 million from Bulgaria for an irrigation system.
? $100 million from Czechoslovakia for expansion of
the Hims oil refinery and power development.
In addition, the USSR signed a $100 million contract
to supply agricultural equipment that may have been
financed but is not included in credit totals because of
our uncertainty about the terms. 25X1
Both economic and political factors have entered
Syria's decision to seek greater Soviet economic in-
volvement through commercial contract awards and
the acceptance of large new financing packages. On
the economic side, Damascus has been seeking barter
deals worldwide to minimize foreign exchange expen-
ditures: these new Communist contracts are repayable
in goods. In the case of the $120 million oil rig deal, a
particularly appealing condition for Damascus was
the USSR's agreement to include financing for one
Western deep-drilling rig not manufactured in the
USSR. In our judgment, other decisions to accept less
efficient Soviet equipment, such as commercial air-
craft and a nuclear research reactor, are clearly
political and stem from President Assad's unwilling-
ness to jeopardize his arms relationship with Moscow.
25X1
The headlong expansion in Communist relations was
reflected in personnel flows as well. In 1984, more
than 4,000 Soviet and East European technicians
were working on development projects and 6,400
Syrians were studying in Warsaw Pact countries. In
addition, another 3,000 Syrian teaching assistants are
scheduled to depart for the USSR and Eastern Eu-
rope under study grants awarded during 1984. Ac-
cording to the US Embassy in Damascus, more
Syrian students are in the Eastern Bloc than in the
As long as Syria remains strapped for foreign ex-
change and Communist countries remain willing to
extend credits repayable in soft currency, we do not
foresee any lessening of Soviet and East European
influence in the Syrian economy.
East European countries are negotiating $7
billion in new construction projects with the Syrian
Government. The number of Communist technicians
is likely to double over the next few years, and Syrians
studying in Communist countries could easily reach
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Table 12
South Asia: Economic Credits and
Grants From Warsaw Pact Countries
Extended
Drawn
Extended
Drawn
Total
8,210
5,585
2,115
740
1958-70
2,595
1,640
480
240
1971-79
2,720
1,620
505
325
1980
1,505
415
135
25
1981
110
330
225
45
1982
95
350
250
50
1983
860
560
40
1984
325
670
520
15
10,000 if current trends continue. The proposed Sovi-
et construction of nuclear research and power facili-
ties also could add a new dimension to Syria's require-
ment for follow-on support to economic projects.
Yemen Arab Republic (North Yemen). During the
year, Soviet economic programs attracted consider-
able unfavorable attention in North Yemen, accord-
ing to US officials. The Soviet-built Bajil cement
plant, recently expanded to produce 80,000 tons annu-
ally, is perpetually plagued with technical problems.
Although Yemen has requested assistance, Moscow is
absent from international relief efforts to rebuild
areas devastated by a December 1982 earthquake and
has not begun repairs to the Al Hudaydah-Ta'izz
road agreed to in 1981. The only new Soviet offer was
to conduct minesweeping off the coast, which Sanaa
reportedly turned down in 1984. Moscow's influence
in North Yemen derives from its role as the largest
military supplier; economic programs run a distant
second in terms of value and impact. We do not
foresee any upgrading of this marginal Soviet pro-
gram, which has averaged about $10 million annually
over the last 20 years.
South Asia
Communist countries pledged $840 million in aid to
South Asian countries in 1984 and delivered a record
$685 million as a consequence of Soviet involvement
in Afghanistan. Moscow's presence in Kabul dominat-
ed its South Asian relations in 1984; the USSR
devoted all of its new South Asian pledges and $420
million in aid deliveries to Afghanistan to overcome
shortages caused by increasing rebel activity. Al-
though Moscow did not provide new aid to India, it
did move to protect its showpiece relationship with
New Delhi by assuring its support to Rajiv Gandhi,
who succeeded Indira Gandhi as prime minister after
the assassination on 31 October 1984. Among other
South Asian countries, whose fear of the Indo-Soviet
axis colors their response to Soviet overtures, Soviet
relations showed no progress. Pakistan accepted new
Soviet aid in June 1984 for steel industry and other
projects, although by yearend relations had deterio-
rated substantially because of Soviet allegations about
Pakistani military support to Afghan insurgents. Ban-
gladesh and Sri Lanka maintained workmanlike, but
not cordial, relations with Moscow, and did not
receive any new Communist aid.
Afghanistan. Against a backdrop of heightened Soviet
military action directed at Afghan rebel forces in
1984, Moscow celebrated the 30th anniversary of its
first economic agreement with Kabul by providing an
estimated $325 million in new aid pledges for com-
modities, by delivering a record $400 million in
commodities and project aid, and by signing contracts
for a number of new projects. Trade rose to more than
$1.1 billion in 1984 as a result of expanded Soviet
support.
The new Afghan aid brought total Soviet pledges to
nearly $2 billion since the Marxists took power in
1977 and $1.5 billion since Soviet forces crossed the
Afghan border in December 1979. To safeguard the
Marxist regime in Kabul, Moscow has mounted one
of the largest and most concessional aid programs in
the history of its relationship with the developing
world. The USSR has provided:
? Some $1.3 billion in grants to Afghanistan, about
two-thirds of its total program.
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Figure 3
South and Southeast Asia:
The Warsaw Pact and Cuban Economic Presence, 1984
Economic Technicians:
The Trendline
Fast Europeans
Soviets
Cubans
Thousands of persons
Technicians present
New aid agreement
signed in 1984
BANGLAD~H ~! J,
? Record amounts of basic commodities, such as
wheat, sugar, oil products, consumer goods, and
industrial raw materials, under a grant aid program.
? Funding for technical services, project studies, and
local cost financing-areas not usually covered by
Soviet aid agreements.
? Generous credit terms and regular rescheduling of
debt payments.
On the negative side, much of the current develop-
ment activity charged to Afghanistan is largely de-
signed to support Soviet military logistic require-
ments. The new bridge over the Amu Darya River,
two oil products pipelines, expansion at Kabul airport,
the construction of seven new airfields, and work on
road and rail transport of facilities will all assist
Soviet troop movements. All were financed under
credit agreements.
In 1984 all of the new aid was for commodities; no
large new development contracts were signed. About
$125 million worth of goods will be disbursed over the
next five years to finance local costs of Soviet projects
under construction. The few new projects allowed to
continue under old agreements include four new air-
bases, construction of housing and communications
facilities, and agricultural development. During the
year, the USSR also completed a 220-kilowatt trans-
mission line to supply power from the USSR, modern-
ization of Kabul airport, expansion of the Naghlu
power plant, and five major irrigation projects involv-
ing improvement of 115,000 hectares of land. Soviet
geologists continued exploration for oil and gas and
solid minerals in northern Afghanistan.
BRUNEI
MALAYSIA
ND ONE S IA
seven oil and gas fields have been 25X1
located, two of them in the past few months. Some
5,000 Soviet technicians were in Afghanistan in 1984,
working on some 50 projects.
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Soviet aid accounts for up to 75 percent of
annual receipts, and Soviet projects generate 70 per-
cent of the industrial output of the state sector.
nuclear power plant that probably would require
about $2 billion in Soviet credits to build.
25X1
25X1
East European countries continued their low-profile
activities in Afghanistan during the year, working on
agriculture, communications, and power development.
Aid deliveries are estimated at $12 million for 1984.
India. Rajiv Gandhi has stressed continuity in foreign
policy and reaffirmed Moscow's special relationship
with New Delhi, according to US officials. The
Soviet-Indian economic relationship proceeded
smoothly in 1984, as planners on both sides prepared
for high-level negotiations to develop trade and eco-
nomic relations through the end of the century. (A 15-
year agreement was signed in May 1985 for $1.2
billion in new credits.) Soviet efforts in 1984 focused
on stimulating sales to the private sector with aggres-
sive trade promotion efforts and promises of credit to
Indian businessmen who purchase Soviet products.
The Indian engineering industry opened an office in
Moscow in 1984 to assist Indian companies in dealing
with Soviet foreign trade associations, and the two
countries discussed forming a joint Soviet-Indian
chamber of commerce
The few project contracts signed by the USSR during
the year included:
? Participation in a $1.5 billion project to produce
22.5 million tons of coal annually at Jharia and
Singraul.
? Utilization of Soviet technology for thermal recov-
ery of dense crudes and the refurbishing of 200
onshore wells whose production has dropped.
? A draft agreement on the construction of the long-
discussed alumina plant in Madhya Pradesh, still
held up by local funding shortages.
There were news reports that the USSR and India
had reached preliminary agreement on Soviet con-
struction of the 1,700 km Hazira-Bijapur-Jagdishpur
gas pipeline to supply six gas-based fertilizer plants.
This project is expected to cost at least $1.5 billion,
and India expects substantial Soviet financing for it.
The Indians shelved, however, a Soviet offer of a
Soviet project deliveries rose to $130 million in 1984,
their highest level in 10 years. These and other
expanded economic contacts fostered a half-billion-
dollar increase in trade to $3.5 billion in 1984. Soviet
deliveries to India included 6 million tons of oil and
products, a major element in the steady trade growth
over the past few years.
Some 1,400 Soviet technicians were in India in 1984
continuing work on increasing the capacities of the
Bhilai and Bokaro steel plants to 4 million tons each,
on the Vishakhapatnam steel mill, oil and coal devel-
opment, thermal power plants, and other projects.
Pakistan. During 1984 the Soviets were still attempt-
ing to influence the policies of the Zia government
through use of economic programs, their only substan-
tial presence in Pakistan. To moderate Pakistan's
opposition to the Soviet occupation of Afghanistan,
the USSR promised (in June) assistance to a metallur-
gical institute, a steel fabrication plant, and a housing
materials plant as part of a wide-ranging 1983 offer of
up to $2 billion of assistance to 150 Pakistani develop-
ment projects. the
new aid could be worth up to $150 million. The two
countries also inaugurated full production at the
Karachi steel plant, which has a capacity of 1.1
million tons of steel annually and is Pakistan's largest
industrial project. By October, however, the USSR
had declined to participate in new Pakistani projects
and refused aid to the Mangla and Kalabagh hydro-
power dams and the Chasma nuclear power station,
citing Pakistan's support to Afghan refugees as a
stumblingblock in their economic relationship. By
mid-1985, in a diplomatic note, Moscow threatened to
cut off aid to existing projects, accusing Pakistan of
providing logistic support and military training to
Afghans.
In contrast to the increasing hostility in the Pakistani-
Soviet relationship, Romania provided more than half
a billion dollars in new credits to Pakistan for a
25X1
25X1
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Figure 4
Latin America and the Caribbean:
The Warsaw Pact and Cuban Economic Presence, 1984
Economic Technicians:
The Trendline
DOMINICAN
BAliI~ REPUBLIC
East Europeans
Soviets
Cubans
Thousands of persons
Central America and
the Caribbean
Ali -iiii iiiiii _i
1975 8(1 81 82 83 84
Technicians present
New aid agreement
signed in 1984
thermal power plant and coal development, continu-
ing a relationship that began more than 10 years ago
with an agreement to build an oil refinery in Karachi.
As part of its trade promotion activity, Bucharest has
recently allocated large credits to South Asia for
development of heavy industry.
The Caribbean and Central America
Because of opportunities provided by radical politics
in Nicaragua, cuts in aid from Western countries, and
limited regional access to funds from other sources,
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Table 13
Central America and the Caribbean:
Economic Credits and Grants From
Warsaw Pact Countries
Totals
340
165
1,095
325
1958-70
1971-79
45
405
30
1980
NEGL
20
10
1981
___.85
10
90
20
1982
175
35
95
60
1983
25
80
255
90
1984
lob
35
230
110
Because of rounding, components may not add to the totals shown.
Excludes oil originally provided under commercial contracts that
we now believe will be repaid under long-term agreements.
Warsaw Pact aid to the Caribbean and to Central
America in the 1980s has been the fastest growing of
the regional programs. In 1984, Communist countries
pledged $280 million (including $10 million from
Cuba) in new assistance to the region, 85 percent of
their commitments to non-Communist LDCs in the
Western Hemisphere. Guyana, Mexico, and Nicara-
gua took up most of the new aid.
The new pledges brought economic aid promised to
these new clients to more than $1.4 billion, almost all
in the past five years. Because much of the $760
million in assistance to Managua has gone to replace
commodities, industrial raw materials, and machinery
and equipment previously bought from the West, aid
deliveries have averaged $120 million a year since
1981-much faster than those usually associated with
Communist programs. In a major departure from its
usual policy, the USSR apparently agreed that ship-
ments of as much as 10,000 b/d of oil annually to
Nicaragua, originally under short-term sales con-
tracts, could now be financed with long-term credits.
The burgeoning aid effort has meant a rapid growth
of employment of Communist technicians in the
region for the past several years, mostly in Nicaragua.
In 1984 the Communist technical presence stood at
nearly 6,000, according to our estimates. The interna-
tional aid community has been surprised by the
European Communist countries' uncharacteristically
rapid and generous response to the aid needs of
Nicaragua, a country far from their spheres of eco-
nomic and political influence. Cuba's interest in the
area appears to be a major factor driving the program.
Nicaragua. Cuba remained the principal foreign pres-
ence in Nicaragua in 1984 through its economic,
military, and personnel programs, but Soviet influ-
ence also grew rapidly because of decreasing Western
aid and the steep slide in the Nicaraguan economy,
according to US diplomats. Declining production and
export prices and erratic economic policies forced
Managua to rely even more heavily on Communist
states in 1984 for both project aid and commodities.
Some 6,000 Communist personnel (mostly Cubans)
were heavily involved in the day-to-day operation of
the economy; and, although no major new develop-
ment aid packages were announced, we estimate
project disbursements at about $200 million, exclud-
ing oil. Moscow also committed itself to upgrade
support of Managua by meeting its annual oil needs
on credit terms.
Moscow's decision to provide oil to Nicaragua-cut
off by other suppliers because it could not pay-
probably signaled a turning point in the Kremlin's
economic relationship with Managua. Until then, the
Soviets appeared lukewarm toward closer economic
ties to Nicaragua, in spite of frequent press references
to the generosity of Moscow's aid program. The oil
supply contract, renewed in 1985, could cost the
USSR about $100 million a year to meet almost all of
Managua's oil needs. This indicates that the USSR
has come out firmly in favor of support to Managua at
a time when the Soviets are reevaluating the value
and effectiveness of some of their traditional aid
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approaches in the Third World, according to recent
articles in Soviet academic journals.
In the development field, the US Embassy estimates
that up to 300 Soviet technicians were in Nicaragua
in 1984 working on a number of projects:
? A field hospital in Chinandega and construction of a
permanent hospital nearby.
? Fishing surveys.
? The modernization of port facilities at El Bluff.
? Gold mining at Bonanza and Siuna and minerals
prospecting elsewhere.
? Irrigation and power development.
? A satellite ground station.
? Constructing and equipping several schools.
The USSR also signed a contract for oil storage tanks
and pipeline construction and was reported near
agreement to provide more than $250 million in
credits for hydropower development.
Cuba's economic influence in Nicaragua sterns from
more than 5,000 economic technicians in the country,
nearly $300 million in assistance to the revolutionary
government since 1979, and training slots for about
1,000 students annually. Current big-ticket projects
under way with Cuban assistance include:
? Rehabilitation of the Jinotepe sugar plant.
? A rail line from Corinto to Managua.
? Completion of the coast-to-coast road.
? Construction of five airfields.
? Oil storage facilities near Puerto Sandino.
Dozens of smaller projects also are under way with
Cuban assistance.
East European countries, led by Bulgaria and East
Germany, provided more than $1 10 million of assis-
tance under old agreements in 1984. About $18
million was for budgetary support, mostly food aid.
Major East European projects included Bulgarian
port development, hydropower, mining, and agricul-
tural projects, and a Czechoslovak textile plant. Man-
agua's new CEMA connection under an agreement
concluded in October 1983 apparently fell short of
Nicaraguan expectations in 1984. Nicaragua's plan-
ning minister requested $2
billion in aid over five years at the annual CEMA
meeting in Havana, an amount that would fill most of
Managua's annual external assistance needs. No re-
sponse from CEMA has been noted.
Guyana. President Burnham's hostility toward Wash-
ington, aggravated by differences over Grenada and
curtailment of the US aid program, favored increas-
ing dependence on Cuba and the East in 1984. Arriong
the initiatives that moved Guyana toward closer
political and economic ties to Communist countries
were:
? Receipt of the largest Communist commitment to
the Caribbean/Latin America in 1984 with $155
million in Bulgarian credits for hydropower, mining,
forestry, and fishing projects.
? Acceptance of an undisclosed amount of aid from
North Korea for a hospital and other projects at
midyear.
? Signature of a contract to buy Soviet helicopters,
the first major deal with the USSR under a three-
year-old Soviet offer of unlimited 10-year credits for
equipment purchases. About 15 Guyanese airline
personnel are undergoing one year's training on the
aircraft in the USSR.
Burnham's successor has stated his intention to con-
tinue these policies since Burnham's death in August
1985.
In 1984, Cuba, which has maintained a program in
Guyana for the past decade, provided 25 doctors,
laboratory equipment, and medical supplies. Havana
also agreed to move ahead on a long-promised medi-
cal school at the University of Guyana, cement stor-
age facilities, a prefab housing unit, and several 25X1
South America 25X1
Moscow and its East European allies made little
progress in expanding cooperation programs on South
America in 1984; for the first time since 1973, the
USSR failed to provide new credits. The area's
deepening financial crisis and its cutback of ambitious
development programs decreased opportunities for
Soviet project investments throughout the region in
1984. Eastern Europe, whose Latin American pro-255X1
gram has been largely dormant since 1980, providea
only about $40 million in new loans to Bolivia and
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secret
Table 14
South America: Economic Credits and
Grants From Warsaw Pact Countries
1980s to $11 billion. Moscow was able to offset about
$100 million of its deficit with oil sales to Brazil in
Extended D
rawn Extended Drawn
Total 1,465 44
0 1,745 575
1908-70 210 5
0 270 85
1971-79 760 17
0 1,215 310
1980 250 7
0 200 20
1981 90 4
5 10 20
1982 ti eci 6
0 25
1983 155 1
5 10 35
1984 3
5 40 80
Colombia. In contrast, Warsaw Pact aid disburse-
ments rose somewhat above previous levels because of
Poland's delivery of cargo ships to Brazil under a
1980 credit.
The nature of the Warsaw Pact aid program, which
targets large-scale industrial (particularly power) pro-
jects in major Latin American countries, has led to its
current state of stagnation. These programs have
always been designed to promote Communist exports
to balance annual imports of South American agricul-
tural products valued at $2-3 billion. Domestic auster-
ity programs, even in basically sound, newly industri-
alizing countries such as Argentina and Brazil, have
cut planned South American investments in some
major development projects that have been under
negotiation with Communist suppliers for years.
Thus, there was no action on major Soviet offers of
credit to fund power and transportation projects in
Argentina, Bolivia, Brazil, and Colombia (although
La Paz may have accepted $200 million in Soviet
financing for machinery and equipment for the tin
industry early in 1985). Unused credits remained at
the $3 billion level, while agricultural purchases
dropped off somewhat to $1.8 billion. We estimate
that the Soviet trade deficit in 1984 was $1.6 billion,
bringing total deficits with Latin America for the
1984.
Argentina. According to the US Embassy, the
USSR's continuing support for Argentina on the
Falkland Islands issue, its position as Argentina's
number-one market for grain, and its willingness to
offer generous financial packages for development
have given the Kremlin considerable influence in
Argentina in spite of the Alfonsin government's
Western-oriented philosophy. Communist countries
were unable in 1984, however, to translate the eco-
nomic leverage provided by their multibillion-dollar
trade deficits into increased sales to Argentina be-
cause of constraints on Argentine public spending and
public-sector resistance to Communist technology.
Soviet project offers that were dead in the water
included:
? Equipment and financing for the Yacyreta and
Parana Medio hydropower projects.
? Development of Bahia Blanca port.
? Fishing ports in Puerto Madryn and Ushuaia.
East European offers were similarly inactivated by
Argentina's financial crunch.
Moscow's break into the local fishing industry was the
only success story in 1984, when an Argentine private
firm signed an agreement to repair and maintain 50
Soviet fishing vessels. For years the Soviets have
attempted to gain some foothold in Argentina's fish-
ing industry. Moscow probably hopes that this contact
will promote the growth of more extensive ties. Ar-
gentine fishermen opposed this agreement because of
the damage to the local industry by illegal fishing by
130 Soviet and Polish fishing boats off the coast.
In contrast to other Communist economic relation-
ships, Buenos Aires expanded its economic ties to
Cuba in 1984. The two countries discussed a joint
fishing and processing venture, and Havana estab-
lished a joint purchasing/ trading company. Argentine
firms also concluded several agreements to construct
hotels and other facilities in Cuba.
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Bolivia. According to the Bolivian press, the USSR
offered up to $500 million in credits for the purchase
of Soviet-manufactured tin industry equipment, par-
ticularly a second volatilization plant at Machaca-
marca following the completion of the plant at La
Palca. Equipment for the new Machacamarca plant,
estimated to require $135 million in financing, has
begun to arrive at the construction site. The Bolivian
go-ahead for the new plant was somewhat surprising,
considering the experience with the La Palca plant.
The $85 million facility, which has been plagued over
its 10-year construction history with delivery and
implementation problems, cost overruns, feedstock
shortages, and a landslide that destroyed most of the
plant, was closed by a strike in March. The shutdown
was caused by workers' complaints about poisonous
working conditions and environmental damage done
by toxic sulfur and arsenic emissions from La Palca.
Acid rain from the plant (the largest in the world) has
25X1 cost the government substantial compensation pay-
ments for severe crop losses in neighboring areas for
the last two years.
Brazil. Soviet economic initiatives went unheeded
during 1984 as Brazil maintained its policy of cool
relations with Warsaw Pact countries. According to
the US Embassy, Brazil sees little advantage to
expanding Communist economic relationships, and
Communist countries have been unable to convince
the Brazilian businessmen who control trade and
development to risk buying Communist equipment
and other goods widely perceived as inferior. Among
the Soviet offers that went begging were:
? Equipment for two power projects.
? Participation in the billion-dollar land reclamation
program in Varzeas.
? Assistance to the $650 million copper development
scheme under the Carajas project.
? Uranium enrichment.
The only significant economic deal under discussion
at yearend was a Brazilian proposal to build $750
million of oil drilling platforms in exchange for Soviet
oil, which could involve Brazilian credits to the
USSR.
Soviet prospects were somewhat brighter in the area
of joint projects in Angola and Mozambique. Brazil is
providing civil construction services for the Soviet-
supplied Capanda irrigation project in Angola
scheduled to begin in early 1985 and may join the
Soviets in coal mining projects in Mozambique. Brazil
also agreed to buy 30,000 b/d of Soviet petroleum in
1984 to ease the USSR's annual trade deficit from
agricultural purchases, according to press sources.
Colombia. The USSR agreed to provide short-term,
low-interest loans to the Colombian public and private
sector under an open-ended trade agreement signed in
April, according to the Colombian press. The new
projects offered for financing by the Soviets included:
? A 500-kilovolt power transmission line associated
with the Alto Sinu power project under construction
with Soviet assistance.
? Turnkey construction of three hydropower projects.
? Prospecting for gold and other metals and minerals.
? Secondary and tertiary oil recovery and coal
gasification.
The USSR also continued its attempts to break into
Colombia's fishing industry with offers of joint ven-
tures, technical services and training, fishing studies,
and provision of port services to the Soviet fleet, but
the Colombian reception has been cool.
Peru. Repayments by Peru on its $ 1.5-2 billion debt to
the Soviets and the future of their fishing agreement
dominated economic relations between the two coun-
tries in 1984. Moscow's agreement in late 1983 to
accept about $125 million worth of goods (including
up to 70 percent in nontraditional items) as a substi-
tute for hard currency payments corning due in 1984
and 1985 was viewed by the Peruvian Government as
a positive development. Soviet purchase contracts are
already stimulating some local industries caught up in
the current economic slowdown. On the other hand,
recurrent accusations by Peru's former fishing minis-
ter that the Soviets were overfishing Peru's coastal 25X1
waters caused frictions that still remain over the
bilateral fishing treaty.
waters
=of which Peru receives only 15 percent. The 25X1
dispute still has not been resolved, although in 1985
the new government of Alan Garcia indicated that it
will honor Soviet fishing rights under the existing
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Tabie 15
Sub-Saharan Africa: Economic Credits
and Grants From Warsaw Pact Countries
Extended
Drawn
Extended
Drawn
Total
4,645
2,215
2,3611
915
1958-70
765
270
250
90
1971-79
1.795
380
1,425
245
1980
330
110
285
85
1981
155
230
105
135
1982
745
440
115
135
1983
310
430
100
140
1984
545
355
80
90
agreement. Peruvian ports and provisioning facilities
earn at least $200 million annually from the Soviet
fishing fleet.
Lima plays a unique role in the USSR's Latin
American policy as the only regional power dependent
on the USSR for sophisticated military equipment
and supplies. Economic programs have been second-
ary since the first military agreement in 1974. Despite
Moscow's mediocre record in providing economic aid
(only $25 million has been disbursed over the past 15
years), Peruvian officials hope that the Soviets will
look with renewed interest at Peruvian development-
particularly the $3 billion Olmos project to irrigate
northern Peru, additional hydropower plants, and a
phosphate project. Peru already has some $250 mil-
lion in outstanding Soviet commitments for the Olmos
hydropower project.
Sub-Saharan Africa
In 1984 the USSR pledged a near-record one-half
billion dollars in assistance to Sub-Saharan Africa,
more than 90 percent of it to Marxist-Leninist clients
and hardcore socialist-oriented states. Moscow's ef-
fort came in the wake of a foreign policy setback as its
two major southern African allies Angola and Mo-
zambique-reached agreements with South Africa in
In spite of its large size in 1984, Moscow's economic
program in Africa was in trouble, drawing criticism
from Western-oriented countries and former ardent
supporters alike. Guinea and Mali, whose economies
are devastated by their 20-year experience with the
Soviet economic model, have decisively implemented
policies designed to attract Western investors. Smaller
socialist-oriented states, such as Benin, Guinea-
Bissau, Equatorial Guinea, and Madagascar, cut off
from traditional markets and sources of funds for
nearly a decade, also have begun to reorient their
economies toward the West.
The new agreements also reinforced Moscow's pattern
in Africa of placing most of its limited resources in
allied countries that share its Marxist-Leninist beliefs.
In the past five years, these states and other socialist-
oriented countries in Africa have received 98 percent
of the USSR's new pledges, and overall they account
for more than two-thirds of Soviet aid to Sub-Saharan
Africa. Nonsocialist countries in Africa have received
only $1.5 billion in Soviet assistance over the past 30
years, less than 5 percent of the total Soviet Third
World program.
In 1984 the USSR provided more than $300 million
for agricultural development, an unusually high pro-
portion for the Soviet program. Some $75 million of
that total supported Soviet fishing interests and prob-
ably will be more beneficial to Moscow than to the
recipient. Otherwise, the USSR's program broke no
new ground. As before, the program did not accom-
modate the special needs of impoverished African
states:
? Grant aid accounted for only $55 million of total
pledges.
? Credit terms were hard in comparison with Western
loans-1 0 to 12 years to repay at 2.5- to 5-percent
interest.
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Figure 5
Sub-Saharan Africa:
The Warsaw Pact and Cuban Economic Presence, 1984
Economic Technicians:
The Trendline
? Soviets
_i Cubans
Thousands of persons
30
Fast Europeans
fi
Angola. Angola, where Moscow has made heavy
investments of both money and prestige, is crucial to
Soviet policy in Africa. Speaking at a symposium of
African scholars held in Moscow in June, Soviet
officials emphasized that the Kremlin would regard
any potential Western threat to the current regime as
? Only $10 million was provided for relief assistance.
Overall, the USSR's interest in Africa still lies in
the area of military sales; for every economic aid
dollar expended, the USSR has transferred nearly
$5 in military equipment and services.
SOUTH
AFRICA LF 50rr+o
Technicians present
New aid agreement
signed in 1984
grounds for a serious Soviet response. Meanwhile, by
providing $2 billion in new military equipment, $50
million in aid for fisheries development, and 1,500
technicians in 1984, the USSR tried to tie Angola
more closely to Warsaw Pact and Cuban support.
Some 7,100 East Europeans and Cubans also were
employed on Angolan economic projects.
Moscow's efforts have not slowed the critical deterio-
ration in Angola's economy caused by its 10-year civil
war (that some experts estimate has cost $7 billion),
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and 1984 was marked by an Angolan decision to turn
Ethiopia. Ethiopia's overwhelming need for economic
development and relief assistance was a key factor in
its relationship with Communist allies in 1984. Addis
Ababa's creation of the Ethiopian Workers Party in
1984 realized a longtime Soviet ambition and may
have opened the way for increased Communist eco-
nomic support. Ethiopia received nearly $550 million
in new economic aid pledges from Communist sources
in 1984, mostly from the USSR and North Korea.
Moscow also agreed to reschedule payments due on
Ethiopia's estimated $3.5 billion economic and mili-
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At the same time that aid needs have become more
urgent, Luanda has become less receptive to Commu-
nist development offers because of the high cost of the
Cuban and Soviet presence
Nonetheless, Luanda's mounting economic
and military indebtedness to the Soviets seriously
impinges on their ability to act independently. F_
Moreover, Moscow's new economic agreement with
Angola in 1984 is beneficial to the Soviet economy. It
called for comprehensive aid to fisheries development,
which we estimate at about $50 million, and includes
construction of a port, processing and refrigeration
plants, a drydock and repair workshops, and training
for Angolan fishermen in return for Soviet fishing
rights in Angolan waters. Soviet overfishing has been
a point of contention between the two countries for
several years, and Angola has not yet signed the 1985
fishing agreement.
In other areas, the USSR is to build oil storage and
transport facilities, hospitals, and fertilizer plants on
easy terms, all of which could be financed under a
1982 agreement that ultimately could be worth $2
billion of credits. A Brazilian agreement to accept oil
for contracting services on the billion-dollar Capanda
dam project, which will use $300-400 million of
Soviet hydropower equipment under a triangular
agreement signed in 1982, clears the way for imple-
mentation of this major project. In contrast, we
observed no activity on the 400,000-hectare Malanje
irrigation project that the USSR agreed to assist in
1983.
tary debt.
In spite of the disastrous state of Ethiopia's economy,
Communist countries provided only about $25 million
for refugees from drought-stricken areas. Communist
diplomats have told our embassy that only the West
can provide the food and agricultural aid necessary to
overcome the drought and famine. Moscow attempted
to deflect international criticism of its own $5 million
relief effort by providing aircraft, trucks, and person-
nel to transport assistance to refugee camps but is
demanding that Ethiopia pay cash for these services.
The USSR also continued to drain what foreign
exchange is left in the economy by demanding that
Ethiopia pay hard currency for oil shipments and has
even withheld oil until payment has been received.
Nonetheless, the USSR's $270 million in assistance
was generous by Soviet standards for the Sub-Sahara
and brought total Soviet pledges to Ethiopia to $1.3
billion-the USSR's largest program in Africa. The
agreements provided about $80 million in commodity
credits over four years, with most of the remainder
going to develop the agricultural sector-an area that
Moscow has strongly recommended as the primary
target in Ethiopia's 10-year development plan. New
projects included:
? An 800,000-hectare land reclamation project in the
Awash Wenz Valley, including construction of an
irrigation dam.
? A dairy farm in the Gambela region.
? Equipment for additional tractor assembly capacity.
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The new Soviet commitments were accompanied by
an influx of nearly 1,000 Soviet economic personnel
25X1 for the relief effort, bringing the Soviet economic
presence to 1,700 persons.
agreements.
Among other Communist donors, North Korea pro-
vided its largest credit ever to a developing country
$250 million to finance two power plants, nine collec-
tive farms, an iron ore mine, a pipe plant, and fishing
boats. The aid is to be disbursed over seven years and
is repayable over seven years at 1 percent interest.
East European countries maintained 725 economic
personnel in the country on development projects, and
Bulgaria gave $12 million of new aid for drought
relief. East Germany completed the Muger cement
plant and the Kembolcha textile plant (jointly with
Czechoslovakia) and promised some $30 million to the
Ethiopian 10-year plan, probably under old credit
Communist countries.
The new Communist credits will not relieve the severe
economic hardships facing the Ethiopian Govern-
ment. The widespread drought and insurgencies in
northern and central Ethiopia have virtually de-
stroyed agriculture, displaced hundreds of thousands
of people, and brought Ethiopian financial reserves to
zero. We project Ethiopian aid needs at about $950
million for 1985, very little of which will come from
Guinea. The change of government in Guinea in April
1984 appears to have accelerated the movement to-
ward normalizing Western economic relations that
had characterized the final years of the Toure regime.
As the new leadership in Conakry increased Western
contacts to obtain aid and other financing, Moscow
moved to refurbish economic ties with nearly $165
million in new credits designed to protect its bauxite
and fishing interests in Guinea. The credits are to
rehabilitate the Soviet-built Kindia bauxite plant and
to construct an industrial fishing complex in Conakry,
as well as to support an agricultural self-sufficiency
program begun in April by the new government. The
new agreements will keep the Soviet economic pres-
ence at current levels (about 450 personnel) and may
even increase economic aid flows slightly above the
current $10-15 million in annual disbursements.
Among East European countries, both Bulgaria and
Romania signed agreements to provide assistance to
projects, but no activity had begun at vearend.F
Ghana. The USSR, Eastern Europe, and Cuba in-
creased their activities in Ghana in 1984 to counter
Accra's improved relations with the West and to
develop influence that could provide access to Ghana's
resources and facilities if Communist interests suffer
elsewhere in Africa, according to the US Embassy in
Accra. The USSR provided about $4 million to
support public organizations: worked on the prefabri-
cated concrete panel plant and the Tarkwa gold
refinery; and was negotiating to assist a hospital, oil
storage tanks, barges for fuel transport, and state
farms. Bulgaria agreed to allocate an estimated $10
million for mining and agricultural projects; and the
Cubans sent their first doctors to Ghana and offered
assistance in education, public health, housing, fish-
ing, and sugar production. Ghana, however, remains
overwhelmingly dependent on Western aid.F___-]
Mali. Driven by Mali's increasing dissatisfaction over
Soviet economic and military programs, President
Traore at midyear reiterated his commitment to
liberalizing Mali's economy, developing a strong for-
eign policy, and seeking Western particularly US
aid. Bamako is dissatisfied with the 20-year failure of
the USSR and Eastern Europe to help Mali build an
economy that responds to world market conditions
and to the needs of Mali's largely rural population. In
1984 the USSR provided an additional $14 million in
credits to accelerate its 20-year development effort at
the Kalana gold mine. A US firm is already produc-
ing gold at a concession granted last year. The mine
has become a major irritant to Mali because of the
length of time it has taken to develop, the USSR's
secrecy about mining operations, and the widespread
Malian belief that Soviet technicians are stealing
gold. The gold mine is the only economic project that
the USSR has implemented in Mali since the early
1960s. when it provided credit for a cement plant, a
stadium, training centers, and the Office du Niger
agricultural project. The mine, whose output will be
used to service Bamako's military and economic debts
to the USSR, has taken up 40 percent of the USSR's
$135 million in economic aid to Mali.
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Mozambique. Unwilling to commit substantial eco-
nomic resources to Mozambique's troubled economy,
Moscow reluctantly endorsed President Machel's ac-
commodation with South Africa and the West
through signature of the Nkomati accords in early
1984. Nonetheless, the USSR has cautioned Machel
that he could lose Communist support if he compro-
mises his socialist principles in his attempt to over-
come severe economic and security problems with
Western assistance. After 10 years of reliance on
Communist technical services, Mozambique's eco-
nomic crisis has reached unmanageable proportions.
Industry has collapsed (output has declined by 60
percent in the last five years), export earnings fell
below $100 million in 1984, debt climbed to $2.3
billion, and reserves now stand at about $20 million.
In 1984, Warsaw Pact countries provided only about
$15 million in development credits and relief assis-
tance, although in an unusual concession the USSR
did agree to provide 200,000 to 300,000 tons of oil and
products on credit terms ranging up to five years. It
also is possible that the Soviets may have signed an
agreement to reconstruct the Moatize-Beira railroad,
which would require sizable credits to implement. We
did not see any forward movement on several out-
standing offers, such as the supply of $150 million of
equipment for the Cahora Bassa hydropower project,
mining and agricultural projects, an aluminum plant,
and coal exploration.
Among the East European countries, East Germany
was the most active with an estimated 2,000 techni-
cians in the country and more than 1,000 Mozambi-
cans in East Germany. East Germany has provided
about $125 million in credits and was involved in coal
mining, agriculture, powerlines, and a textile plant;
most of these activities are repayable in hard currency
or coal that will supplement German domestic pro-
duction. There were no developments in other Com-
munist programs.
Nigeria. The USSR's major African development
project-the Ajaokuta steel mill in Nigeria was
stalled in 1984 because of a shortage of Nigerian local
funding to support the project, planned for first-stage
operation in 1985. Moscow has delivered more than
$800 million of equipment to the construction site
under a $1.2 billion contract signed in 1979, but the
project has been plagued with local contracting, de-
sign, financing, and administrative problems since it
began. According to some observers, Ajaokuta's re-
mote location, lack of infrastructure, and poor quality
local raw material inputs for the plant make it
dubious that it will ever produce steel at competitive
prices.
Lagos remained an attractive trading partner for East
European countries. Bulgaria offered $120 million in
credits for school workshops, electrification projects,
and pharmaceuticals and proposed an expansion of
trade to $300 million annually. Hungary signed a $25
million contract to supply and install more than 1,000
workshops for technical schools over a two-year peri-
od. Together, East European countries have provided
more than $500 million in credits repayable in hard
currency and are attempting to increase their share of
Nigeria's equipment and services market.
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