SINO-SOVIET FOREIGN ECONOMIC POLICIES AND THEIR PROBABLE EFFECTS IN UNDERDEVELOPED AREAS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP98-00979R000400160001-0
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 16
• Document Creation Date: December 23, 2016
• Document Release Date: June 4, 2013
• Sequence Number: 1
• Publication Date: March 26, 1957
• Content Type: NIE

W 7-
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NIL 100-57
26 March 1957
SEEREfi
N? 321
NATIONAL INTELLIGENCE ESTIMATE
NUMBER 100-57
(Supersedes NIE 100-3-56)
n r ,. r
/ , ar
SINO-SOVIET FOREIGN ECONOMIC POLICIES
AND THEIR PROBABLE EFFECTS
IN UNDERDEVELOPED AREAS
Submitted by the
DIRECTOR OF CENTRAL INTELLIGENCE
The following intelligence organizations participated in the
preparation of this estimate: The Central Intelligence Agency
and the intelligence organizations of the Departments of
State, the Army, the Navy, the Air Force, and The Joint Staff.
Concurred in by the
INTELLIGENCE ADVISORY COMMITTEE
on 26 March 1957. Concurring were the Special Assistant, In-
telligence, Department of State; the Assistant Chief of Staff,
Intelligence, Department of the Army; the Director of Naval
Intelligence; the Director of Intelligence, USAF; and the
Deputy Director for Intelligence, The Joint Staff. The Atomic
Energy Commission Representative to the IAC, and the Assist-
ant Director, Federal Bureau of Investigation, abstained, the
subject being outside of their jurisdiction.
A O J ThR1! 08T IpAENT
TO WWII REGISTRY,
h "ii IL-4# Hqs.
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SINO-SOVIET FOREIGN ECONOMIC POLICIES AND THEIR
PROBABLE EFFECTS IN UNDERDEVELOPED AREAS
THE PROBLEM
To estimate the objectives of Sino-Soviet foreign economic policies toward under-
developed areas and their probable effects.
CONCLUSIONS
1. During the past two years the Sino-
Soviet Bloc's effort to promote economic
relations with underdeveloped countries
has grown dramatically. We believe that
Bloc trade, credit, and technical assist-
ance programs are intended to increase
Bloc prestige and influence, diminish the
influence of the West, and undermine the
structure of Western alliances, without
materially increasing the risk of general
war. (Paras. 8-16)
2. Although the Bloc still has a relatively
small share of the total trade of most
underdeveloped countries, its trade with
them has risen sharply during the past
two years. As present programs gather
momentum, this trade is likely to expand
further, especially since it offers pros-
pects of economic advantage to the Bloc.
(Paras. 21, 44)
3. Bloc credit and technical assistance
programs have also expanded substan-
tially during the last year, though they
remain concentrated in relatively few
countries. Although Bloc capabilities for
expanding these programs are substan-
tial, competing internal demands, coupled
with relatively limited opportunities to
achieve important political benefits from
new programs, suggest that the volume
of new credits from the Bloc in the next
year or two will probably expand at
a slower rate than in 1956. (Paras.
17,25,45)
4. We believe that few additional states
are likely to enter into major credit or
technical assistance arrangements with
the Bloc in the near future However,
the Bloc will continue to be alert to situa-
tions offering a promise of political gain
in return for economic assistance and ex-
panded trade. Western economic policies
or conditions adversely affecting particu-
lar underdeveloped countries would al-
most certainly enhance Bloc opportuni-
ties. (Paras. 46, 55)
5. In the Middle East and Asian countries
which are already the recipients of major
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Bloc economic programs, Bloc prestige
and opportunities for exercising influ-
ence will probably be maintained and
may continue to grow. However, eco-
nomic ties with the Bloc are not by them-
selves likely to subject any country to
political domination except possibly in
small countries on the borders of the Bloc
which fail to preserve similar ties with
the West. (Para. 48)
6. In the longer run, Bloc economic ac-
tivities will provide opportunities for the
propagation of Communist ideas and doc-
trine in politically unstable states. The
Bloc is achieving a greater presence in
countries which will be under increasing-
ly severe internal strains as they seek to
develop and modernize their economies.
(Para. 49)
7. The availability to underdeveloped
countries of Bloc, assistance has reduced
the influence that the West can exercise
through foreign aid. Acceptance of Bloc
trade and aid enables many of these states
to achieve some degree of balance in their
relations with the two great power groups
- a status which they welcome. The
availability of Bloc assistance will not
only tend to raise the price to the West
of exercising influence through aid in un-
committed states, -it may also make
such aid a more necessary and a more ex-
pensive condition of maintaining Western
.positions with allied states. (Para. 54)
DISCUSSION
1. OBJECTIVES OF BLOC FOREIGN
ECONOMIC POLICIES
8. Recent Sino-Soviet policies in the economi-
cally underdeveloped areas of the free world
have had the objective not only of increasing
Bloc prestige and influence but also of en-
couraging neutralist policies and lessening
We influence in those areas, including
the undermining of the structure of Western
alliances and bases. To these ends, Bloc lead-
ers seek to identify themselves with the strong
forces of nationalism and the strivings of
most underdeveloped countries for economic
betterment, and to channel these forces
against Western positions and influence. Bloc
foreign economic policy - in its arms, trade,
credit, and technical assistance programs -
is an integral part of the Bloc's general policy
of political warfare against the West, and is
directed toward the same general objectives.
9. The stream of Bloc missions offering capi-
tal equipment and technical assistance to un-
derdeveloped countries during the past two
years has played upon a number of themes.
These missions have emphasized the success
of Communism in providing rapid industrial
expansion in the Bloc countries and the bene-
fits which the underdeveloped countries could
obtain by establishing closer relations with
the Bloc. At the, same time, they have sought
to exploit weaknesses in Western policies or
relations with less developed countries. The
US is pictured as seeking to extend "colonial
capitalism" by tying "political strings" to
its aid, by charging higher interest rates on
loans, by interfering in the details of local
plans, by depressing commodity markets
through dumping of surpluses, and by gen-
erally trying to keep underdeveloped coun-
tries in the "colonial" status of producers of
raw materials for the continued enrichment
of the West. In such ways, the Bloc has
sought both to utilize and to aggravate the
currents of suspicion against the West
which are in part a legacy of former Western
domination in many of the underdeveloped
countries.
10. In the Middle East, arms and other trade
deals have been used to strengthen regional
opposition to the Baghdad Pact and to in-
crease Soviet influence. Credit and technical
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assistance bulk large in the Soviet policy of
re-enforcing neutrality in the uncommitted
states of Asia. Soviet leaders also seek by
offers of trade and assistance to loosen the
ties of states allied with the West. For ex-
ample, the USSR has offered a credit of $200
million to Turkey to assist in its development
program, and intimations have been made to
Pakistan that substantial credits would be
available if it adopted a more impartial policy
as between Western and Bloc countries.
11. In its economic overtures to underdevel-
oped countries, the Bloc is in a position to
combine business with politics. Industrial
development in the USSR and Eastern Euro-
pean countries, with their increasingly effi-
cient capital goods production and rising costs
of food and raw materials, provides a sound
economic basis for increased trade with less
developed countries. The ability of the Soviet
economy to absorb imports from these coun-
tries means that the USSR can operate most
of its programs with considerable economic
benefit or at least without serious net eco-
nomic disadvantage. For example, when the
Bloc sold surplus arms to Egypt at bargain
prices in return for cotton, there were almost
certainly economic as well as political ad-
vantages to the Bloc. Agreements for the
large-scale purchase of Burmese rice not only
provided opportunities for expanding Bloc
contacts with Burma but served to supple-
ment low levels of food consumption in cer-
tain Bloc countries.
12. Considerations of economic advantage are
probably greater in the case of the industrial-
ized Eastern European Satellites, which re-
quire a wide range of imported raw materials.
Within the limits set by their commitments
to the Bloc, the Satellites have rapidly ex-
panded their trade in economically advan-
tageous markets in less developed areas.
However, the USSR has involved the Satel-
lites in credits and trade activities, particu-
larly in Egypt, Syria, and Yugoslavia, more
directly related to Soviet objectives than to
Satellite economic advantage.
13. Despite elements of economic benefit, we
believe that Soviet credit and technical assist-
ance programs as they have thus far evolved
are to a large extent a manifestation of Soviet
political interest in the countries concerned.
The four countries which have signed major
credit agreements with the USSR are Yugo-
slavia, India, Indonesia, and Afghanistan.
While Yugoslavia is an important potential
source of certain Bloc raw material require-
ments, the recent action of the USSR in de-
laying the implementation of agreements
which would have been repaid in commodi-
ties suggests that in the Soviet calculation
political considerations are over-riding. India
can supply some industrial raw materials,
e.g., iron ore and industrial diamonds, and
Indonesia could expand its rubber exports,
but in each case the size of Soviet credits
seems disproportionate to the trade benefits
which are likely to be realized over the short
term. Also, while the USSR can probably use
low-grade wool and some other products from
Afghanistan, the economic return does not
appear to justify credits to that country in
excess of $160 million.
14. In some instances the Bloc leaders are
probably seeking through trade and credit
programs to foster a degree of economic de-
pendence which would not only tend to affect
policies of the countries concerned but could
in time facilitate Communist infiltration and
subversion. The lavish aid to Afghanistan
and attempts to create a major dependence
on Bloc markets for the primary exports of
Egypt and Burma were probably designed to
obtain influence. over their policies. There
is a danger over the long run for small coun-
tries whose economic stability is heavily de-
pendent on the exports of primary commodi-
ties which non-Communist markets cannot
wholly absorb. On the other hand, larger and
relatively more diversified economies like those
of India and Indonesia are not likely to fall
into such dependence. Nor are deliveries of
industrial plants and equipment on easy credit
terms to such countries likely to gain for the
Bloc a major leverage over their economies.
15. Even though the Bloc leaders may see
some disadvantages in strengthening non-
Communist governments by large-scale eco-
nomic assistance, these disadvantages are in
their view probably outweighed by the pros-
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pect of short-run political gains and the pos-
sibility over the longer term of affecting the
development of economic institutions and po-
litical organization in a manner favorable to
Bloc objectives. Economic programs offer
Bloc countries a major opportunity to inter-
ject themselves into areas where their influ-
ence has hitherto been small. By these means
the Bloc expects to gain a greater presence
in politically unstable countries like Indo-
nesia. The Bloc leaders probably recognize
that Communist parties in the free world
Asian countries are too weak to attain power
without more directly merging their programs
with the strong national movements. They
almost certainly calculate that their assist-
ance programs identify the Bloc as a signifi-
cant economic force in world affairs and
directly associate it with the national aspira-
tions of these countries. At the same time,
the Bloc leaders probably believe that neither
their nor Western assistance will be sufficient
to ameliorate the probable severe strains and
frustrations in these countries as the gap
between achievement and aspirations widens.
16. One aim of Bloc economic and technical
assistance is to encourage the recipient coun-
tries to develop institutions in the Soviet
image. Soviet leaders probably believe that
the construction of industrial plants and other
major projects in the uncommitted countries
lends credence to claims that the Bloc is more
sympathetic than the West to the desires of
underdeveloped countries for industrializa-
tion, and enhances the appeal of the Soviet
type of organization as a system which is par-
ticularly *effective for producing rapid eco-
nomic development. The dislike of Soviet
methods which exists in the Western coun-
tries is less widespread in areas where millions
of people live in poverty and have little expe-
rience with other than autocratic govern-
ments. The challenge is to the applicability
of the political and economic system of the
West to the problems of the underdeveloped
states.
II. THE IMPLEMENTATION OF SINO-SOVIET
FOREIGN ECONOMIC POLICY
17. During the last year, Bloc economic rela-
tions with underdeveloped countries have
grown dramatically. The effort has included
overtures to almost all the underdeveloped
countries and has become a major element
in Bloc diplomacy with nine of them. Credit
agreements increased from $468 million in
1955 to a level of $1.4 billion in 1956.1 In
addition, credit offers of over $500 million
are outstanding. There has been little grant
aid other than. a total of $35 million being
given by Communist China to Cambodia and
Nepal. Compared with relatively few Bloc
specialists in underdeveloped areas during
earlier periods, there were during 1956 a mini-
mum of 1,400 employed for periods of a month
or more, primarily in the Middle East and
Asia.
18. The major part of the credits being ex-
tended by the Bloc in underdeveloped areas
have been for economic development - the
purchase of industrial equipment and plants
and the furnishing of related technical assist-
ance. While a number of countries have ac-
cepted such credit and technical assistance
from the Bloc, these programs are substan-
tial only with respect to Yugoslavia, India,
Afghanistan, and Indonesia. The terms of
the credits in general appear quite liberal.
Interest rates in most cases are 2 to 21/2 per-
cent, and provision is often made for at least
partial repayment in commodities. In offer-
ing economic and technical assistance, the
Bloc leaders have catered to intense local
desire for status by sending top officials,
stressing reciprocity of benefits, and by not
demanding economic justification for projects.
The psychological impact has also been in-
creased in a number of cases by the selection
of projects which have particular appeal to
local populations or which produce impressive
results in, a relatively short time.
19. In all its foreign economic programs the
Bloc has attempted to expand trade or to
establish a basis for trade where none pre-
viously existed. Agreements, fairs, and adver-
tising campaigns extolling the progress of the
Bloc, as well as the excellence of its products,
have been. used. A striking feature of recent
1 About $350 million of the Bloc credits were for
the sale of arms in the Middle Eastern area. See
Annex for specific data on the Bloc's economic
activities in underdeveloped areas.
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Bloc trade tactics has been the adroitness
with which attractive offers have been direct-
ed to countries with financial difficulties or
with surpluses of primary commodities. Egyp-
tian cotton and Burmese rice were the most
notable but not the only examples. The USSR
sought to buy Turkish and Lebanese goods
which, because they were overpriced, were
not moving in volume in world markets.
When Iceland had balance of payments diffi-
culties, the Bloc came forward with large-
scale trade agreements. Such agreements are
welcomed by many governments in the under-
developed world as tending to stabilize their
external trade. The attractiveness of Bloc
trade practices has been heightened by offers
of "tie-in deals" involving credits and tech-
nical assistance as well as export outlets.
20. Despite a poor record under earlier trade
agreements, Bloc countries have, during the
past two years, improved their reputation as
trading partners. The outstanding exception
is Burma, where the Soviet program received
some setbacks, primarily because the USSR
was unwilling or unable to supply the types
of goods which the Burmese wanted. How-
ever, the USSR has taken steps to ameliorate
this situation, and in general Bloc countries
have been unusually expeditious in the imple-
mentation of credit agreements. Although
there have been a few instances of friction,
Bloc specialists have gained a reputation for
competence, discipline, and unobtrusive living.
21. Recent trade trends generally reflect the
efforts of the Bloc to expand its economic
relations. Bloc trade with underdeveloped
areas was running at an annual rate of $1.4
billion during the first six months of 1956,
more than 20 percent above the 1955 level and
nearly 75 percent greater than in 1954. The
expansion in 1956 was largely the result, how-
ever, of a spectacularly increased level of
trade with a relatively small number of coun-
tries. The most prominent gains were ap-
parent in Bloc trade with Burma, Yugoslavia,
Egypt, and India. Substantial gains were
also made in trade with Iceland, Greece, and
Malaya, although in Latin America trade de-
clined significantly with Argentina and Cuba.
Despite recent increases, the Bloc still has a
relatively small share of the total trade of
most underdeveloped countries.
Percent of Total Trade
with the Bloc
Iceland
21.1
24.5
27.8
Egypt
9.6
15.4
22.9
Yugoslavia
1.7
9.8
20.6
Burma
.8
11.6
16.3
Turkey
12.3
19.7
16.1
Ceylon
11.9
6.2
9.4
Iran
12.4
11.4
7.
Greece
4.2
3.8
6.7
Argentina
8.1
8.9
5.
Indonesia
1.6
4.8
4.5
Pakistan
5.6
5.8
4.5
India
1.3
1.9
3.8
Malaya
2.5
2.2
3.3
22. Bloc assistance, though small in compari-
son with the total volume of grants and cred-
its flowing from the US, looms relatively large
in the competition for influence in the un-
committed states of the Middle East and Asia,
where the Communist effort is concentrated.
The major part of US aid to the Afro-Asian
regions is concentrated in South Vietnam,
Pakistan, the Republic of China, and the Re-
public of Korea and is largely for military
assistance and related defense support activi-
ties. Moreover, with the possible exception
of India, the countries which are major tar-
gets of the Bloc economic offensive do not
presently provide an investment climate which
is attractive to Western private enterprise,
and foreign development aid becomes largely
dependent upon government action.
III. BLOC CAPABILITIES
23. The centralized control of the economies
of the USSR and its European Satellites pro-
vides Bloc leaders with a considerable political
and administrative capacity to operate an
effective foreign trade and aid program. The
Soviet leaders can allocate resources for for-
eign assistance from their large and increas-
ingly flexible industrial capacity without hav-
ing to go through the processes of parliamen-
tary or public justification. They can import
commodities which are not badly needed, ma-
nipulate prices, enter into long term commit-
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ments, and generally adapt their initiatives
to the demands of special situations. Fur-
ther, when important interests are involved,
the USSR can act with considerable dispatch
and maneuverability in its dealings with the
underdeveloped world. There is considerable
evidence that Bloc programs have been co-
ordinated by the USSR.
24. The USSR commands the economic and
technical capability to sustain and, in time,
expand substantially its trade and credit as-
sistance program. It is producing a large vol-
ume of basic capital goods which are in heavy
demand in underdeveloped countries and can
advantageously absorb large imports of raw
materials. It has enough technically quali-
fied personnel for the operation of foreign
assistance programs, and its facilities for
training technicians from underdeveloped
countries are considerable. While there is
a sound economic basis for an expanding level
of trade, exports under long term credits in-
volve foregoing the domestic use of resources,
at least temporarily. Moreover, during the
latter part of 1956, the USSR undertook credit
commitments and other concessions to the
Eastern European Satellites totaling over $1
billion. However, shipments under Soviet
credits to both Satellite and non-Bloc coun-
tries are to be phased over a number of years
and in any one year will be a fraction of one
percent of Soviet gross national product.
Such commitments are well within Soviet
capabilities.
25. Nevertheless, Bloc leaders are likely to be
more careful in allocating additional resources
for use outside the Bloc in the immediate fu-
ture. The unsettling events in Eastern Eu-
rope, coupled with the lag in the development
of energy and raw material resources, have
forced a downward revision in the goals of the
1957 Soviet economic plan and probably of the
Sixth Five Year Plan, and have had reper-
cussions on planned economic goals through-
out the Bloc. Efforts to deal with these prob-
lems, and to ensure the continued rapid rates
of growth in the Soviet economy, probably
involve a tighter allocation in supplies of So-
viet machinery and equipment for the next
couple of years. While the allocation of re-
sources for important additional foreign cred-
its would be relatively marginal to Soviet
gross capabilities and would have negligible
effects on longer term internal plans, it is
probable that Soviets leaders will seek to phase
deliveries under new foreign credits more
heavily in the period after 1958. For example,
the recent Soviet credit to India for an esti-
mated $126 million provided for deliveries be-
ginning in 1959.
26. The more industrialized Eastern European
Satellites have the capacity for increased pro-
duction of certain capital goods for export
and will probably be able to provide increas-
ing support to Bloc programs in underdevel-
oped countries. Czechoslovakia and East Ger-
many have been most active in the trade and
assistance fields, while the contributions of
Poland and Hungary have been relatively
minor. The Satellites will also be under con-
siderable inducement to increase such exports
in order to obtain raw materials which are
becoming more of a problem for the Bloc.
Consequently, the USSR is likely to allow a
further, possibly substantial, expansion of
Satellite trade with non-Bloc underdeveloped
areas in the next few years.
27. Communist China is increasing its par-
ticipation in the Bloc economic campaign,
particularly in non-Communist Asia. In 1956
the Chinese Communists exported a complete
factory to Burma and undertook to construct
four small plants in Cambodia on a grant
basis. The capability of Communist China
for exporting capital goods is small, but the
progress of its industrialization in the next
few years and its eagerness to demonstrate
this progress mean that it will probably offer
a somewhat larger volume and wider range
of machinery and light manufactures in
Southeast Asian markets.
IV. SUSCEPTIBILITY OF UNDERDEVELOPED
AREAS TO BLOC ECONOMIC
DIPLOMACY
28. As has been noted, Bloc economic diplo-
macy is but a facet of total Bloc foreign policy.
Similarly, the attitude of each underdeveloped
state toward Bloc economic approaches is
strongly conditioned by political as well as
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by economic factors. Individual states vary
widely in such matters as the degree of their
suspicion of Soviet intentions, their desire for
great power support for particular national
objectives, and their estimates of how far they
can go in accepting economic relations with
the Bloc without prejudicing relations with
the West.
29. The underdeveloped states are obsessed
with a determination to preserve and strength-
en their independence. They are wary of any
relationship with foreign powers which recalls
the image of former colonial status. In many
countries these sentiments carry anti-Western
overtones. The underdeveloped countries are
generally suspicious of exclusive dependence
on the West and tend to associate Western
capitalism with colonial domination. Many
do not believe that economic relations with
the Bloc carry a greater inherent danger to
their independence than economic relations
with the West. Many of them feel that by
maintaining economic relations both with the
Bloc and the West, they can improve their
bargaining position with both. At the same
time there is a widespread desire to remain
aloof from close political ties with either side
in a great power struggle which might involve
a general war. It is in the context of these
basic political feelings that the underdevel-
oped countries weigh the implications of eco-
nomic relationships with the West and the
Bloc.
30. The desire for a full measure of political
independence is accompanied throughout the
underdeveloped world by increasing aspira-
tions for the fruits of economic development.
A number of these states require foreign aid
merely to keep existing low standards of living
from falling; all seek help in order to obtain
the economic progress without which their
political stability would be threatened. But
local capital resources are in most cases wholly
inadequate to support the investment pro-
grams which these countries wish. Nor have
free world capital markets and other institu-
tional arrangements provided development
funds of the magnitude desired. Hence, they
look with increasing eagerness towards any
foreign sources which give hope of furnishing
the desired capital investment with the mini-
mum risk of political involvement.
31. In many of the underdeveloped countries,
the export of a few primary commodities, for
which the free world has traditionally pro-
vided virtually the only market, is an impor-
tant factor in government revenues and in the
level of national income. These countries ac-
cordingly welcome increased trade relations
with the Bloc as a means of providing addi-
tional purchasers, as well as furnishing mar-
kets for commodity surpluses and for other
goods which are noncompetitive in free world
markets. For example, Iceland, Ceylon, Tur-
key, and Greece have turned to Bloc markets
for important segments of their trade. Gen-
erally, there have been serious lags and fluc-
tuations in free world markets for primary
products, which have affected the economic
positions of countries like Burma, Egypt, In-
donesia, and more recently Ghana, and have
tended to increase their susceptibility to Bloc
offers of trade.
32. In itself, the economic dependence of an
underdeveloped country on a foreign power
is unlikely to involve subjection to political
control by the latter. This is particularly the
case as long as alternative channels of trade
are kept open and alternative sources of as-
sistance can be made quickly available. The
Bloc has attained an important role in the ex-
port markets of a few countries, e.g., Iceland
and Egypt. Afghanistan will have substantial
difficulties in repaying the large credits it has
received from the Bloc. Such circumstances
inevitably become a factor in the political
calculations of the governments involved.
The danger, particularly for small states, of
a predominant economic dependence on the
Bloc, is the opportunity provided to the latter
to exploit political and psychological weak-
ness, especially in cases where these states
increasingly isolate themselves from Western
channels of trade and assistance. However,
even in these states the strongly nationalist
attitudes combined in many cases with a
hyper-sensitivity to the prerogatives of inde-
pendence, tend to limit their susceptibility to
political control.
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33. Middle East and South Asia. Bloc eco-
nomic diplomacy has been most successful
with Egypt and Afghanistan, which have been
particularly predisposed toward policies which
lessen their dependence on the West and
which have been unable to obtain from the
West economic, military, and technical as-
sistance in the amounts and on the terms
they desire. They have also welcomed So-
viet support in local disputes with their
neighbors and, in the case of Egypt, with var-
ious of the Western powers. Syria and the
Yemen are similarly motivated. Although less
interested in Soviet political and diplomatic
support, India has welcomed Bloc as well as
Western aid in advancing its ambitious de-
velopment program.
34. The idea of Bloc assistance is generally
attractive in other states of the area, partic-
ularly as a means of stimulating Western aid.
However, unless strongly anti-Western ele-
ments gain control, as may be the case in Jor-
dan, these states will probably continue to
view Bloc offers of assistance with some re-
serve lest they jeopardize profitable Western
ties or unduly expose themselves to Commu-
nist influence. These inhibitions to the ac-
ceptance of economic commitments to the
Bloc are particularly strong in the states al-
lied with the West and in Saudi Arabia - all
of which benefit substantially by their ties
with the West and in addition have strong po-
litical suspicions about the Communist pow-
ers. Nevertheless, a number of these states,
including Greece and Turkey, have been
moved by economic advantages to expand
trade with the Bloc. Moreover, there are ele-
ments in many of these states which would
favor acceptance of Bloc aid both for the eco-
nomic benefits involved and as evidence of
greater independence from the West. Should
there be a decline in the value of their Western
ties or in the risks of forfeiting them through
expanded dealing with the Bloc, some of these
states would probably be receptive to at least
limited Bloc developmental assistance. While
Turkey remains reluctant to accept credits
from the Bloc, Soviet proposals such as a re-
cent $200 million credit offer may become
more tempting if the Turks fail to obtain ad-
ditional development funds from the West
pending stabilization of their economy. Gen-
erally, incentives to acceptance of Bloc de-
velopmental aid are likely to remain less in the
oil producing states, whose revenues make
them capable of meeting long-term develop-
ment expenses without major outside capital
assistance.
35. At least so long as Nasser remains in pow-
er, Egypt will continue to be the focal point
of Soviet activity in the Middle East. A sig-
nificant portion of future Egyptian exports is
already mortgaged to the Bloc in repayment
for the substantial arms shipments and eco-
nomic assistance provided thus far. More-
over, Nasser will probably continue to look
toward the Bloc for help because of his desire
for material and diplomatic support in his cur-
rent difficulties with the Western powers and
his probable belief that the Bloc provides the
best market for a major portion of Egypt's
cotton production and the only reliable source
of additional arms for himself and his Arab
friends. Nasser has shown some concern
about falling under Soviet domination and
would probably welcome countervailing West-
ern (and particularly US) support if he were
convinced it could be obtained on terms po-
litically acceptable to him. However, he would
almost certainly wish to retain a free hand
in making new economic deals with the Bloc
and in promoting the acceptance of Bloc arms
and assistance by other Arab countries.
36. The Afghan government's keen interest
in the Eisenhower proposals and its recent
moves toward rapprochement with Pakistan
indicate a desire to restore some balance in
its foreign diplomatic and economic relations.
However, Afghanistan's location and the fact
that it is already heavily committed to the
Bloc with respect to trade, developmental aid,
and military assistance, make it likely to re-
tain close economic ties with the Bloc, even
if it receives substantial Western help.
37. The present government of India has
staked its domestic reputation on a major
developmental effort in the period 1956-61.
The plan presently calls for about 2.4 billion
dollars in foreign capital, of which $800-900
million seems assured, about $250 million of
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it from the the USSR. The Indian' govern-
ment will probably remain receptive to in-
creased assistance from the Bloc. Ceylon,
whose political outlook is now similar to. that
of India, will probably be receptive to such
deals with the Bloc as can be worked out with-
out destroying the relatively favorable posi-
tion it enjoys in Western markets.
38. Southeast Asia. As a result. of their low
standards of living and aspirations to improve
these standards, many of the Southeast Asian
countries are attracted by the idea of develop=
.mental assistance from any source. Economic
growth has been relatively slow throughout
the area in the past few years. The increas-
ing strength and rapid economic progress of
Communist China exercise an increasingly
strong attraction for accepting Communist
methods and assistance. The ostensible will-
ingness of the Communist countries to extend
economic aid without requiring political ties
or impairing the neutrality of the states of the
area tends to increase the attractiveness of the
Bloc as a source of aid. While manifestations
of susceptibility to Bloc overtures have ap-
peared throughout the region, either, in terms
of relaxing trade controls or a general interest
in trade, Bloc economic diplomacy has so far
made important progress only in Burma, In-
donesia, and Cambodia.
39. The effect of less advantageous world
markets for rice in 1953-55 on Burma's
plans for development, coupled with a neu-
tral, policy, led to long-term trade
arrangements with Bloc countries. If com-
pletely carried through, these arrangements
would have tied up almost 40 percent. of Bur-
ma's trade and seriously disrupted economic
ties with the non-Communist countries.
However, an improvement in free world mar-
kets for rice led Burma substantially to re-
duce its goals for export to the Bloc. More
recently, Burma has agreed to accept Soviet
construction of six major public buildings,
including a technological institute, theater,
and permanent pavillion for Soviet industrial
exhibits. While these monuments to Soviet
assistance and the presence of Bloc techni-
cians may have some impact, the present
Burmese government appears determined to
avoid too great an economic dependence on
Bloc countries.
40. Aspirations for development and the at-
tractions of neutrality have inclined Indo-
nesia and Cambodia to accept Bloc assistance.
In addition to accepting $22 million of grant
assistance from Communist China, the Cam-
bodian government has undertaken a trade
agreement which, if fulfilled, would direct
over 35 percent _.of its trade to Communist
China, despite'the fact that Cambodia has
experienced no commercial difficulties in ex-
porting to the West. However, it does not
appear likely that the trade agreement will
be fully implemented, and unless there,is a
drastic reduction in Western. aid or difficulty
in marketing Cambodian exports in the free
world, Cambodia probably will not become
economically dependent on the Bloc in the
next few years. Indonesia has signed, though
not yet ratified, an agreement for a $100 mil-
lion credit from the USSR and remains sus-
ceptible to Bloc offers of assistance. The
need for foreign aid was sharpened by the
reduced availability of Dutch capital and the
withdrawal of Dutch technicians since Indo-
nesian independence. However,. it is unlikely
that the Bloc through economic means
will gain a significant position in the Indo-
nesian economy, or in the economies of the
other major trading countries of Southeast
Asia, barring severe dislocations in Western
markets.
41. Africa and Latin America. Bloc economic
diplomacy toward Latin American and Afri-
can states has not progressed to the same
degree as in the Middle East and Asia.. The
susceptibility of most Latin American coun-
tries to Bloc offers is largely limited to a mar-
ginal interest in additional trade outlets for
primary commodities in return for capital
goods. More potentially susceptible to Bloc
offers are Ghana, the Sudan, and the newly
emerging states of North Africa, all of which
are essentially dependent on foreign aid to
maintain internal stability. Morocco and
Tunisia are not likely to accept 'substantial
Bloc assistance if they , receive currently
planned French and US aid or if capital funds
and preferential commercial advantages are
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extended under the auspices of the European
Common Market. However, French capital
and technicians continue to withdraw; and
in the event of a complete rupture with
France, the attractiveness of major Bloc as-
sistance would be greatly increased unless ad-
ditional assistance were forthcoming from the
US. Similarly, with the withdrawal of Brit-
ish authority, Ghana may be susceptible to
Bloc offers, both as an act of independence
and because economic stability has been jeop-
ardized by the declining price for cocoa. In
the Sudan, Bloc overtures have not been sin-
gularly successful to date, but might become
more attractive if economic support from the
West proves inadequate.
42. Europe. Yugoslavia is particularly recep-
tive to Soviet overtures because Tito as a
Communist desires good relations with the
Bloc, while as a national leader he has gran-
diose aspirations for industrializing the Yugo-
slav economy. However, the Yugoslavs are
well aware of the dangers of Soviet economic
domination. While accepting large credits
and increased trade with the Bloc, they al-
most certainly wish to maintain strong eco-
nomic ties with the West in order to avoid
too great a dependence on the USSR.
43. In the less developed countries of Western
Europe, Bloc economic overtures have been
relatively unsuccessful except in Iceland,
where the loss of Western markets and the
alternative offered by Bloc trade have in-
volved a shifting of the trade pattern away
from the West. Iceland's substantial depend-
ence on Soviet markets contributed to the
strengthening of neutralist forces and has
been a factor in the government's recent po-
litical calculations. Soviet repression in Hun-
gary, combined with a considerable improve-
ment, in Iceland's prospects for obtaining
Western currencies, has served to lessen Ice-
land's vulnerability to Soviet economic diplo-
macy. However, should there be a decline in
international tensions, Iceland's present gov-
ernment would again be more susceptible to
Soviet influence. While there is an incipient
trend of increasing trade between Portugal
and the Soviet Bloc, it is not likely to influ-
ence Portugal's foreign policy.
V. PROBABLE BLOC COURSES OF ACTION
AND THEIR EFFECTS
44. The new economic tactics are likely to
continue as an important element of Bloc
policy. The Sino-Soviet leaders probably con-
sider that their economic diplomacy is an ef-
fective means of expanding their political in-
fluence and does not materially increase the
risks of a general war. At the same time,'
expanding economic ties with underdeveloped
countries will continue to. offer prospects of
economic advantages to the Bloc. The pro-
grams begun over the past two years have
developed a momentum of their own which
should produce a steadily expanding level of
Bloc trade with less developed countries and
enlarged technical assistance activities.
45. While total Bloc credits to underdeveloped
countries are likely to expand, the rate at
which new credit commitments increase in
the next year or so- is_not likely to be-as_great
as in-1956. Concerned with problems of Bloc
solidarity and facing the prospect of a decline
in the rate of economic growth in the Bloc,
the Soviet leadership may question the wis-
dom of substantially expanding foreign eco-
nomic assistance outside the orbit at this time.
Also, the Soviet leaders may estimate that-
additional assistance-to--countries= now re-
ceiving o heduled to _receive aid will pro-
duce minimal political results pending the
implementation of current--projects. At the
present time, only--aboutone-third of the
Bloc's program of nonmilitary credits has been
implemented or is under firm contract.
46. However, the Bloc will continue to be alert
to situations susceptible of exploitation and
offering a promise of political gain in ex-
change for economic assistance. Additional
credits and increased trade are almost certain
to be offered to one or more of the Arab states
in an effort to maintain Bloc influence in this
area. Bloc leaders are likely to pay careful
attention to the possibilities of extending eco-
nomic programs to Laos and the newly inde-
pendent countries of Africa. The general
focus of their efforts will continue to be in
the Afro-Asian areas.
47. It is almost certain that the Bloc ' will
endeavor to meet its present commitments for
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assistance in the Middle East and Asia, bar-
ring overriding internal priorities. On the
other hand, implementation of Bloc assist-
ance to Yugoslavia has been slowed down and
some of the credits may even be withheld as a
result of political and ideological differences.
Probable Effects
48. The great majority of the underdeveloped
states will be willing to accept increased trade
with the Bloc. For most states the extent of
this trade will not constitute major depend-
ence. In the Middle Eastern and Asian coun-
tries which are already the recipients of major
Bloc credit programs, Bloc prestige and op-
portunities for exercising influence will prob-
ably be maintained and in some cases in-
creased. The expectation of continued credit
benefits is almost certain to be a factor in-
fluencing the policies of even such an asser-
tively independent country as India. Never-
theless, in most of these countries economic
influence will not be sufficient to confer on
the USSR or Communist China anything like
the ability to directly control or even to
manipulate their policies. Moreover, expand-
ed economic relations with the Bloc will almost
certainly be productive of some dissatisfac-
tions and frictions which will tend to lessen
the benefits to the Bloc of its activities.
49. Most of the recipient governments are ex-
tremely sensitive to any apparent indications
of direct subversion by Bloc officials and tech-
nicians, although they do not in all cases have
the ability to develop effective countersubver-
sion measures. However, many of these gov-
ernments are taking deliberate measures to
check the growth of local Communist parties.
In time, the prospect for the growing attrac-
tion of Communist ideas, as a consequence of
economic activities, is probably a more im-
portant potential danger. As personal con-
tacts multiply between Bloc and local fellow
workers, and as more and more technicians
are trained by Communists, there will be an
increasingly wide propagation of Communist
ideas and doctrine. The extent to which these
dangers will become of importance depends on
the complex range of political, psychological,
and economic factors which together deter-
mine the stability of the countries involved.
In Southeast Asia, Chinese Communist trade
and aid programs and the presence of their
missions will have a particularly important
effect on the attitudes of the local Chinese
communities.
50. Under special circumstances, Bloc aid by
contributing to economic growth and stability
in recipient countries may make it more diffi-
cult for the Communists to attain major in-
fluence. For, a state which already tends to
be politically stable and which is making
tolerable progress in coping with its economic
problems - through the combination of its
own resources and Western assistance - Bloc
aid might have a cumulative effect which
would be to Western advantage. This could
be the case in India.
51. On the other hand, in many countries as-
pirations have been aroused which are unlike-
ly to be fulfilled. Under these circumstances,
a government may become unable to deal
effectively with its internal problems and turn
to authoritarian solutions. In such a case,
the example of Communism will be appeal-
ing, and it might be that a local Communist
party, as the most effective available organi-
zation, would assume power.
52. Bloc arms shipments and economic aid
to states engaged in anticolonial and other
quarrels, e.g., Egypt, Syria, and Yemen, will
support Bloc policy of maintaining tensions
at a high pitch. This has already proven
to be so in the case of Egypt and Syria; at
the same time the estrangement of these
countries from the West will continue to in-
crease the extent of their involvement with
the Bloc. The increasing economic depend-
ence of Egypt and Syria on the Bloc, and
the consequent ability of the Soviet leaders
to influence their policies, will almost cer-
tainly continue, whatever resolution is made
of outstanding issues in the Middle East.
53. The effects of Bloc economic programs are
also potentially great in small primitive states
on the borders of the orbit. Afghanistan is
already significantly involved with the Bloc
as a result of major Bloc programs. While
Afghanistan is attempting to balance its re-
lations between the Bloc and the West, the
extent of its involvement with the Bloc and
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its geographic location will continue to be
major factors influencing Afghan policies.
Similarly, the acceptance of Bloc assistance
by Laos in substantial amounts could fairly
quickly become a major factor affecting its
economy and its policies.
54. The availability to underdeveloped coun-
tries of Bloc economic assistance has in some
measure reduced the influence which the US
is able to exercise through foreign aid. Hither-
to, the West has been the primary source of
large-scale capital funds and technical assist-
ance; in the future the Bloc will provide an
additional or alternative source of assistance
welcome to a number of states. The disposi-
tion of these states to balance their relations
with both protagonists in the East-West con-
flict will be strengthened. Already in the un-
committed states of Asia the acceptance of
aid from both the great powers has a high
symbolic importance as an assertion of their
independence. At the same time, the avail-
ability of Bloc assistance will tend to raise
the price of exercising influence through for-
eign aid in uncommitted states and may make
such aid a more necessary and more expensive
condition of maintaining Western positions
with allied states.
55. Nevertheless, we believe that few addi-
tiorial , states are likely to enter into major
1 credit arrangements with the Bloc in the near
future. As pointed out earlier, the Bloc is
likely to reduce the rate of expansion of its
credit programs in the next year or two.
Further, the continuing value of Western eco-
nomic ties and suspicions of the Communists
in most states throughout the underdeveloped
world are likely to outweigh the advantages
offered by Communist assistance and trade.
However, Western economic policies or condi-
tions adversely affecting particular underde-
veloped countries would almost certainly en-
hance Bloc opportunities. The Bloc has al-
ready given evidence of an alertness to seize
such opportunities.
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STATISTICAL DATA ON BLOC ECONOMIC AC-
TIVITIES (INCLUDING ARMS DEALS) IN
UNDERDEVELOPED AREAS
Minimum Known Credits, Offers of Credits, and
Numbers of Specialists Provided by the
Bloc to Underdeveloped Countries
Specialists
Credit serving
Offers 30 days
Credits Outstanding or more
Recipient Accepted as of during
Countries 1954-1956 31 Dec. 1956 1956
(millions of US dollars)
Middle East
Egypt $283.6
Ethiopia 3.
Jordan ---
Iran
Lebanon
Saudi Arabia
Sudan ---
Syria 80.2
Turkey 16.9
Yemen 9.
$236. 380
1.
5.
.7
24.8
220.5
15
15
10
65
40
10
South and
Southeast Asia
Afghanistan $161.9 --- 430
Burma --- --- 85
Cambodia --- --- 20
Ceylon --- --- 5
India 281.9 22. 270
Indonesia 112.3 --- 20
Total 556.1 $22. 830
Western Europe
Iceland $ 1.7
Yugoslavia 464.
$9.5
Total 465.7 -9.3
5
30
35
Latin America
Argentina $21.5 $15. 5
Brazil 2.6 11.5 --
Cuba --- 3. --
Mexico .1 ---
Paraguay --- --- 5
Total $ 24.2 $29.5 10
GRAND
TOTAL $1,441.7 $549 1,410
357.0
29.8
22.5
608.7
TABLE 2
Total Bloc Credits Accepted and Under Considera-
tion by Types of Projects as of 31 December 1956
Credits Accepted
Plus Those
under
Type of Project(s) Consideration Percent
(millions of US dollars)
Arms
Irrigation and Power
Agriculture
Mineral Development and
Manufacturing
Transportation and
Communications
Raw Materials and
Capital Equipment n.e.s.
Other Credits(b)
TOTAL
627.3 32
1,990.7 100
(?) Includes equipment.
(?) Credits which have not been committed or for
which no reliable project breakdown can be
determined on the basis of present information.
Arms Credits Extended by the Soviet Bloc
to Underdeveloped Countries
1955-1956
(millions of US dollars)
Recipient Total Bloc
Afghanistan 28
Egypt 250
Syria 70
Yemen 9
Total
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