DIFFICULTIES ENCOUNTERED BY LESS DEVELOPED COUNTRIES (LDCS) IN THEIR ECONOMIC RELATIONS WITH THE SOVIET UNION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP08S01350R000200530002-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 13
• Document Creation Date: December 22, 2016
• Document Release Date: March 7, 2012
• Sequence Number: 2
• Content Type: REPORT

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DIFFICULTIES ENCOUTITMED BY LESS DEVELOPED COUNTRIES (LDCs)
IN THEIR ECONONEC RELATIONS WITH THE SOVIET UNION
As the less developed countries have expanded economic rela-
tions with the USSR, they have encountered numerous difficulties
inherent in Soviet economic aid programs. They often have found
the USSR to be an uncertain trading partner, many of its goods to
be of poor quality, and spare parts for Soviet mechanical equip-
ment difficult to obtain. Recipients of Soviet economic assis-
tance frequently complain about the delays in. project implementation,
the use of dated technology, the high prices for the materials, and
equipment, and the errors in planning and execution of projects.
I. Soviet Trade with the Less Developed Countries
A. Nonfulfillment of Trade Agreements
For the LDCs, the Soviet Union often has proven to be a
sporadic and uncertain trading partner. Quotas contained in bilateral
agreements frequently are not fulfilled, and trade often fluctuates
from year to year. Nor are individual trade contracts immune.
After protracted haggling over prices, the USSR finally backed out
of a 1968 commitment to purchase 54,000 railway cars from India
with deliveries to begin in 1970. On the 25X1
other side of the coin, a 1969 Soviet trade agreement with Afghanis-
tan called for an Afghani surplus to be maintained to facilitate
debt repayment but it never materialized because the Soviets did
not import enough.
Where imbalances in trade with the USSR exist, many countries
receive non-convertible ruble credits. If the trading partner can- -
not find enough suitable Soviet goods at reasonable prices, it is
placed in the position of actually financing the trade imbalance
with an interest-free trade credit.
Despite promises to increase the proportion of manufactures
in imports from LDCs, for most countries the USSR remains a raw
materials importer. Although the share of manufactures from LDCs
has risen as a percent of total imports, about 80% has come from
Egypt and India as repayment of aid debts.
The following trade data show the erratic nature of Soviet
trade.
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Soviet Trade with Selected Asian Countries
1965-70
Million US $
1965
1966
1967
1968
1969
l
Burma
18.9
5.5
9.6
2.2
6.3
4.9
Cambodia
4.1
3.0
2.0
2.8
.7
1.9
Ceylon
40.4
38.6
30.9
28.0
22.6
18.9
Indonesia
86.4
35.6
29.5
24.3
27.4
32.8
Nepal
2.2
1.5
1.3
1.5
2.0
1.5
B. Resales of Imports
Another difficulty faced by the less developed countries
is that the USSR often agrees to "accommodate" them by importing
some of their primary products, only to resell substantial portions
of these imports on Western markets. Thus, the LDC runs the risk
of simultaneously losing an established Western market and receipts
of badly-needed hard currency. Egyptian cotton is a prime example
of a commodity frequently resold in Western markets. As much as
10% of the Egyptian cotton purchased by the USSR reportedly has
moved into the resale market at discounts as high as 20% below
world market prices. A recent Soviet deal to ship cotton imported
from Sudan to India for processing elicited sharp Sudanese pro-
tests that this arrangement would jeopardize its large cotton
exports to India. Although Sudan received assurances that the
cotton will be processed only for resale to the USSR, Sudan repor-
tedly plans to cut shipments of cotton to the -USSR next year by
C. High Prices
An LDC may pay premium prices under bilateral barter agree-
ments for poorly designed Soviet machinery and other products.
While the prices of most LDC commodities may be ascertained daily
by checking world prices, erratic Soviet pricing methods make it
almost impossible to determine the competitiveness of prices for
Soviet equipment. Turkish officials, for example, report that
prices for industrial equipment imported under Soviet aid credits
are higher than those quoted in the West for s' a equipment of
superior quality.
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D. Trade Deficient
Among other problems encountered by less developed countries
in their trade with the USSR, the following are cited:
1. Poor packaging and handling frequently results in
shipments arriving damaged; improper transport
scheduling occasionally results in too rapid delivery
and accumulation and spoilage on the importing
country's docks. Such was the case with a recent ex-
change with Ecuador, where one-fourth of a Soviet
shipment of cement arrived poorly packaged and much
of it hardened at the port. Ecuador estimates that
it lost $165,000 on this banana-cement barter deal.
2. A shipment of 5,000 tons of fertilizer for Soviet-
aided state farms in Iraq not only was badly packaged
but arrived without notice, could not be stored, and
became caked and unusable. Moreover, the Soviet Union
charged Iraq $92.40 per ton compared with $44.80 paid
by Iraqi importers for similar fertilizer from other
countries.
3. Only seven months after they arrived, 80 out of 100
Soviet jeeps bought by Colombia had broken down and
were removed from service.
Almost 80% of one large purchase of Soviet tractors
was inoperative only a short time after they were
put to use in Pakistan.
4. Argentine health officials condemned some 1,500 tons
of Soviet butter which arrived in the country contam-
5. Pakistani news sources reported that Pakistan encountered
long delays in every stage of a trade transaction with
the USSR. In several cases letters of credit had to
be issued twice before the goods arrived. Moreover,
the quality of Soviet hand tools obtained in this agree-
ment were considered to be inferior to the locally
produced tools.
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6. Domestic sales"agen s for Soviet mechanical equipment
frequently complain about the difficulty in obtaining
spare parts for such equipment. Businessmen in
Somalia, Mali, and Iran, for example, have complained
about the financial losses such delays cause. A
Syrian agent for Soviet tractors cancelled his con-
tract after two years because the spare parts problem
had caused his business to decline.
In August 1969, Cameroon reported that the cement market
was in chaos because deliveries from the USSR were not
arriving on time and imports from other countries would
have to be authorized at substantial losses.
9. Ghana requested international oil companies to supply
four cargoes of crude on which the USSR had defaulted
under a 1969 contract. It was assumed that the default
reflected growing Soviet-Ghanian political frictions
following the impounding of a Soviet trawler.
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II. Soviet Economic Aid to the Less Developed Countries
A. Political Motivation
The Soviet Union seeks to project an image of its economic
aid as a selfless undertaking to assist recipient countries with
their economic development. In reality, the USSR employs its aid
program as a primary instrument for furthering its geopolitical
interests, for encouraging the growth of socialism in recipient
countries, and for establishing a favorable political climate for
the activities of domestic Communists. In answer to an Iranian
Communist's questions concerning Soviet economic aid to Iran,
a Soviet official summed up Moscow's policy when he stated:
It is the Soviet plan to cultivate the under-
developed-areas with foreign aid. In Iran, as in other
countries, Soviet aid will help speed the economic
and social changes necessary to create the proper
conditions for the establishment of socialism.
This trend has already accelerated in Iran, cannot
now be stopped, and must be encouraged by Soviet aid
for the sake of the Communist movement.
However, the achievement of this long range goal through aid
often is hampered by Soviet failures. There have been complaints
on almost every aspect of Soviet aid activity. The USSR has been
accused of conducting incomplete surveys, misinterpretation of
survey data, faulty planning and project design, high prices, ineffi-
cient implementation and delivery of poor quality machinery and
equipment. In addition, Soviet cost estimates often prove optimistic,
and cost overruns occur frequ=ntly.
B. Questionable Economic Priorities
Less developed countries not only have cause to question
the motivation of the Soviet aid program but also its soundness
in terms of their own economic requirements. Some Soviet-assisted
projects have contributed little to the recipient's national
income, have not made optimum use of indigenous resources, and
have created repayment problems. The USSR readily agrees to con-
struct projects which can be completed rapidly and offer quick
propaganda returns. Consequently, there are stadiums in Rangoon,
Djakarta, and Bamako, hotels in Burma, Afghanistan, and Guinea,
and a presidential palace in Conakry. Such projects contribute
little to the long-run economic requirements of the recipient.
Even some large-scale Soviet?pc"ojects designed to make direct
contributions to the recipient's economy have proven unsound. In
1970, 10 of the 13 major Soviet- 25X1
financed undertakings, mostly heavy industrial plants, were operating
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at a loss and were a growing liability to the Indian economy.
Failures have centered around faulty planning, inflexible speci-
fications, and delays in deliveries and completion dates. In
some cases, the completed project's output far exceeds Indian
needs and is not competitive in world markets; in others pro-
duction costs far outstri sales rices.
C. High Cost of Soviet Technical Assistance
Soviet technical assistance must be paid for and usually
is charged to the Soviet project credit, whereas such aid generally
is provided as a grant under Western aid programs. The costs of
Soviet services tend to be high and in many countries have accounted
for 25%-30% of total Soviet expenditures for a project. Malian
officials, for example, have stated that for many Soviet projects
the greater part of aid funds is being spent for technical ser-
vices. The total cost of a geological survey undertaken by the
USSR in Ghana was estimated at about $5.7 million, of which $4.4+
million was spent to cover the costs of Soviet technicians.
The high cost of Soviet technical services is due to the
numerous items which must be covered and the inordinately large
number of Soviet technicians which must be employed. Included in
the foreign exchange portion chargeable to the Soviet credits are
salaries, round-trip plane fare (often first-class), annual leave,
and life insurance premiums. If a technician's family accompanies
him, their fares must be paid, in addition to a family transfer
allowance. The host country also is responsible for most of the
local maintenance costs of Soviet technicians. These include
free medical care, office space, official transportation within
the country, and furnished quarters for the technician and his
family.
The narrow functional specialization of Soviet technicians
(an outgrowth of the specialized Communist educational system) also
is a cost-raising factor. Several Soviet technicians sometimes are
required to perform the work of one Western technician. Conse-
quently, many more technicians are required for a Soviet project
than would be employed on a similar Western aid project. The
problem is aggravated by Soviet unwillingness to accept full admin-
istrative responsibility for a project. Soviet organizations are
responsible for only conducting technical surveys, for coordinating
work of all technicians employed on a project, for directing basic
construction activities, and for installing machinery and equipment.
The aid-receiving country usually is responsible for all related
work involving the use of domestic goods and services and for coor-
dinating overall construction activities. This often requires
administrative experience which a recipient country may not possess
and for which aid was originally sought.
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D. Deficiencies in Project Undertakings
Many recipients of Soviet aid have complained of the poor
performance of Soviet machinery and equipment and the frequent
lack of spare parts. Agricultural machinery and road construction
equipment have been singled out as being particularly unadaptable
to conditions in IDCs. Algeria, India, Pakis tan, Egypt, and Iraq
periodically have complained about the inefficient methods and
outmoded equipment used by the Soviets in their oil prospecting
activities, as well as about the long periods required to carry
out surveys. Food processing installations have fallen victim
to Soviet miscalculations of raw materials supply and markets
for the output.
The Soviet aid performance has probably been poorest in
Indonesia. Despite more than $100 million owed by Djakarta to
the USSR for economic aid, not a single Soviet industrial project
has been completed. 'T'hus, Indonesia is paying for equipment
delivered but not installed and in various states of disrepair.
The following table details some problems encountered by other
recipients of Soviet aid.
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ALGERIA
Steel complex at Annaba
BURMA
The Algerians have expressed great disappointment Gd th the Soviet-
assisted portion of the El Hadjar steel works, also receiving
aid from West Germany and France. Althoughthe Soviet facilities
were to be completed in 1969, they still were not finished at
the end of 1971. West German and French firms have completed
their portions of the project. The Algerians cite the inflexibi-
lity of Soviet state organizations as a major factor in the
delay.
Kyetmauktaung dam and irri- Soviet geologists did not study substrata of floor of dam
gation project sufficiently, and constant seepage is severe. While it is not
uncommon for 300 borings to be made for a dam of this size, the
USSR made only 20 test borings. During construction, in anti-
cipation of flooding, Soviet technicians released water from the
dam and destroyed a large area of crops. The remaining crops in
the area died in the ensuing drought, as not enough water was left
in the dam for irrigation. Soviets reportedly used 1913 statistics
to estimate rainfall, which is currently insufficient to fill the
planned lake. Experts report that although the dam itself is well
constructed, it is unlikely that the large scale irrigation planned
Hospital, Taunggyi
Constantly plagued by equipment failures. In addition, it is
inaccessible to very ill or injured patients, being located at the
top of a steep hill.
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CEYLON
Iron and steel works, Homogama- The costs for the first stage of the four-stage project exceeded
Oruwala Soviet estimates of the cost of the total project by 105% and were
400% higher than for comparable complete installations in Israel
and New Zealand. Its location is far from available iron ore
deposits; water supply and transportation facilities are nonexistent.
The project has experienced delays in the delivery of working
drawings and machinery and equipment. The Soviets accused of
misinterpretation of data on ground geology when the foundations
for sane equipment installations sank. Although Ceylon has some
35,000 tons of scrap iron available annually, Soviet plans for
first stage construction, which includes a rolling mill, did not
envision construction of a blast furnace to convert the scrap
for use in the mill. Therefore, Ceylon must export scrap and
import iron billets until the last stage of the mill is complete.
Production, which is well in excess of Ceylon's needs, is not
competitive in world markets.
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ETHIOPIA
Oil refinery at Assab
Ethiopians complain that the site at Assab was poorly chosen because
it had no access to crude oil so= es, no rail facilities for inland
distribution, required construction of a ten-mile aqueduct to bring
in water supplies. From the very staxt the Soviet blueprints needed
correction and modification and the snags have not been eliminated
to this time. The plant was scheduled to go onstream in 196+ and was
finally inaugurated in 1967. By this time Ethiopian petroleum products
requirements had multiplied and the capacity of the plant was inadequate.
Too many technicians were required to run the plant, and operation
costs were prohibitively high. In addition, construction costs,
originally estimated at $55 million, nearly doubled. Storage facilities
have been inadequate resulting in periodic production cutbacks.
Transportation costs are high and Ethiopia continues to be forced
to import petroleum products. The quality of production is described
as third rate, and consumers have had to modify equipment to use the
oil. In 1969, the Ethiopians requested the USSR to double the capa-
city of the plant by 1971, but no agreement has been reached to date.
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INDONESIA
Superphosphate plant, Although some 1 million of equipmen a been delivered, the
Tjilatjap project was abandoned in 1966 with construction half completed.
The status of the plant is still uncertain, but in 1971 a Soviet
team carried out a survey of equipment for this plant and the
steel mill at Tjilegon. If it is decided to complete the project,
it probably would require imported materials for their operation,
as no deposits of sulphur or phosphate in sufficient quantity have been
found in Indonesia. The previous decision to go ahead with the
project was taken before geological surveys had been completed.
Steel mill, Tjilegon
Road construction, Borneo
Project abandoned in 1966 with construction only one-fourth complete.
The value of equipment received at the site totaled $36 million.
Numerous complaints were recorded even before work was stopped
on the mill. It was located poorly, 40 miles from water supply, and
extensive prospecting failed to yield evidence of economically
exploitable iron ore deposits. Equipment reportedly was from a
dismantled Siberian plant and deliveries were erratic. Operations
would require imported iron ore, and cost of steel would be high.
Only 30 miles of road were completed, most of which has deteriorated
because of improper drainage. Indonesians constantly complained of
breakdowns of Soviet mach iner and equipment for this type of con-
struction.
The failure of the completed mechanized farm is tied to the inade-
quacy of Soviet roadbuilding techniques, as the installation could be
reached only by the road mentioned above.
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INDONESIA (Cont'd)
Atomic reactor, Serpong
Abandoned by the Soviets in 1965, with most of the equipment delivered. C
is in advanced state of deterioration.
In 1971, Indonesia cancelled plans for the project because equipment
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NEPAL
Hydroelectric plant, Panauti Because this project was located in an area where seasonal fluctuations
in water flow are great, the plant can operate at capacity for only
four months a year, the rest of the time it is cut back to less than
two-thirds of capacity. In addition, experts state that the dam is
too narrow.
Sugar mill, Birganj
Cigarette factory, Janakpur
Simra-Janakpur road
SOMALIA
Various aid projects
For several years, the mill operated at about 40% of installed capa-
city because of insufficient cane supply. Local demand for refined
sugar was overestimated, st year of
operation.
This plant was deaigned originally to reduce substantially Nepalese
imports of cigarettes from India, but it depends on tobacco imports
for its operation. Initially operated at about 25% of capacity because
of lack of tobacco.
Finally completed in 1971 after ten years of construction.
interest.
Somali officials are dismayed at the $10 million loss involved in for
Soviet projects which probably will be abandoned. This amount must
still be repaid with interest. The projects include an agricultural
facility at Tug Wagiale and facilities at-Belib for production of cotton,
oil seed; and grain. Production from these facilities were planned to
satisfy the nation's need for grain, supply raw material for food-
processing industries, and provide income for repayment of loans and
CIA/OER
23 Feb 1972
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