SOVIET FOREIGN AID LOSES MOMENTUM
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Publication Date:
April 17, 1970
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REPORT
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DIRECTORATE OF
INTELLIGENCE
Soviet Foreign Aid Laser Momentum
Special Report
WEEKLY REVIEW
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Foreign aid is not high on the current list of Soviet priorities. Pressures resulting from a
poorly performing economy as well as attention demanded by events on the China border,
Vietnam, SALT, and the Middle East all divert attention from foreign-aid programs. As a
matter of prestige, ongoing economic aid programs are being fulfilled, but the days of
handing out large showcase credits solely for their political impact are over. The Soviets have
found military aid, with its relatively rapid payoff, a more effective foreign-policy tool than
economic aid. Although aid to non-Communist countries does not exert any noticeable drag
on the Soviet economy, Moscow probably views its total outlays to the free world and to the
USSR's Communist clients with as little enthusiasm as major Western aid donor countries
view their aid expenditures.
Moscow's expenditures on foreign aid last
year dropped to an estimated $1.8 billion from
the $2 billion per year level reached in 1967-68.
Reduced military aid to North Vietnam and com-
pletion of the resupply of military equipment
that the Arab countries lost during the war with
Israel accounted for most of the decline. This
year, however, the total may be boosted by
increases in economic aid to North Vietnam and
by deliveries of air-defense equipment to Egypt.
Soviet economic aid deliveries to non-
Communist countries have averaged about $300
million annually in recent years, while military
deliveries have totaled some $350 million. Aid to
Communist countries is not as well catalogued,
but Cuba and North Vietnam have received most
of the more than $1 billion spent. Balance-of-
payments assistance to Cuba alone amounted to
$400 million last year in addition to some $90
million in sugar-export subsidies.
The USSR's commitments to fellow
Communists and the need Moscow feels to bolster
its leadership role allow little latitude for chang-
ing aid relationships with the Communist world.
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In the free world, however, Moscow now is more
selective and tough-minded about extending new
aid. The Soviet stand against the recommendation
of the United Nations Conference on Trade and
Development that developed countries allocate
one percent of their gross national product to
development aid suggests that Moscow's leaders
are content with a low-keyed program. The gross
outflow of Soviet aid to the less developed coun-
tries comes to less than one tenth of one percent
of the USSR's national output and is matched by
medium and long-term credits provided Russia by
the developed West.
The lack of dynamism in the program is
particularly obvious in Moscow's failure to ex-
ploit recent opportunities to use foreign aid to
enhance its status with the new revolutionary
juntas in Peru and Bolivia, as well as with the
Suharto government in Indonesia. The USSR,
however, has extended new aid for projects that
promise to be of mutual benefit, such as the
development of a national petroleum industry in
Iraq and of bauxite ore in Guinea.
The slowdown in the Soviet aid offensive in
the non-Communist world cannot be attributed
to the economic costs of the program. Economic
and military aid drawings, together, have been on
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the order of almost $700 million a year during
the past four years, but annual repayments for
past Soviet deliveries have been rising rapidly and
last year reached an estimated $300 million.
The lack of significant new aid initiatives to
non-Communist countries in recent years prob-
ably reflects the Soviet assessment that the politi-
cal yields from aid are quite limited. It conveys
no guarantee of continuing influence, as Soviet
experience in Indonesia, Ghana, and Guinea has
shown, and it sometimes leads to unwanted
involvement in differences between two client
states, as in the Iran-Iraq and the India-Pakistan
disputes.
Moscow remains the primary source of mili-
tary and economic assistance to its Communist
allies. Soviet economic aid to North Vietnam
USSR Economic and Military Aid to North Vietnam
In Million US Dollars
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continues its slow rise. Last year it totaled about
$250 million, while military assistance fell off to
$120 million. This pattern of reduced military
deliveries and expanded economic aid has pre-
vailed since the partial bombing halt in 1968.
The bulk of the $250 million in economic
aid supplied to Hanoi consisted of foodstuffs,
petroleum, transportation equipment, and other
goods to meet North Vietnam's short-range eco-
nomic needs. Some of the aid, however, consisted
of small industrial and agricultural projects de-
signed to help rehabilitate the economy. Some
bomb-damage repair work to heavy industrial
facilities took place and work continued on sev-
eral Soviet-built power plants, including a large
power plant at Thac Ba. Soviet technicians also
assisted in repairing bulk petroleum facilities at
Haiphong and Hanoi and continued to expand
Haiphong harbor. No new, large-scale industrial
projects were undertaken during the year.
Military aid continued to fall and last year
totaled only 25 percent of the peak 1967 deliv-
eries. The decline reflected the country's reduced
need for air-defense ammunition and missiles,
which made up the bulk of Soviet military aid
during the period of US bombing.
Moscow continues to carry a heavy burden
of economic support for Cuba, which in large part
consists of funding Havana's chronic trade im-
balance. Last year this deficit amounted to an
estimated $400 million. The USSR also provided
$90 million in sugar-export subsidies in 1969. This
year the trade deficit will be sharply reduced and
perhaps eliminated by increases in sugar exports
to the USSR from Cuba's large harvest, but the
sugar subsidy will, of course, rise. Slow progress
continues on Soviet aid projects, which include
the construction of a large fertilizer plant and a
steel mill, as well as renovation and expansion of
the Cuban sugar-milling industry. Although no
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fe,
U_ r Economic and Military Aid Extensions to Less Developed Countries of the Free World
(million US dollars)
Econorric aid (19540
Militaryaid (195569)
ALGERIA
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major new projects have been undertaken re-
cently, Moscow agreed in January to move for-
ward on the construction of a ground station for
telephone, telegraph, and television communica-
tions between the two countries via satellite. This
project was first announced in 1966.
Soviet military shipments, which resumed in
January 1969 after almost a year's hiatus, are
believed to have consisted of equipment to main-
tain Cuba's defensive capabilities. Photography
shows an increase in January in the number of
SA-2 missile canisters at two storage sites, indi-
cating that at least a portion of Cuba's SAMs are
being retired and probably replaced. In addition,
over 170 new 130-mm. artillery pieces have been
identified in overhead photography since their
introduction in 1969.
Mongolia received generous Soviet aid last
year under Moscow's earlier commitment to
provide over $1 billion in economic assistance for
its five-year plan (1966-70). The size of this
commitment reflects the importance Moscow
attaches to ensuring the active support of Mon-
golia in the Sino-Soviet dispute. Soviet industrial
equipment continued to be channeled into
Darhan, which Moscow is converting into the
country's first industrial complex. Other as-
sistance went to agricultural projects, particularly
the construction of livestock feeding and shelter
stations.
Soviet economic assistance to North Korea
was resumed on a small scale in 1968 and, despite
Pyongyang's entreaties, continued at the same
low level last year. Moscow may have provided
between $30 and $40 million worth of aid to
Pyongyang during the year. Deliveries consisted
largely of machinery and equipment for a power
plant and an iron and steel plant, which were
originally called for in a 1961 aid agreement. The
Soviets also remained North Korea's primary
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source of military aid, supplying naval craft and
additional ground forces equipment, including
radar defense equipment.
The USSR is estimated to have spent at least
$35 million in hard currency support last year to
restore order to Bulgaria's trade with the West.
Another $35 million is expected to be spent this
year. The USSR extended no long-term aid to
Czechoslovakia following the Soviet-led invasion
in 1968, but some aid may be forthcoming this
year. Some type of short-term Soviet economic
assistance for the Czechoslovak economy might
also be necessary. Bulgaria, Hungary, and Yugo-
slavia are still drawing down previously extended
Soviet economic credits. The unused portion of
these credits is estimated at about $900 million,
of which the Bulgarian share is about $700 mil-
lion.
AID TO NONCOMMUNIST COUNTRIES
Military aid activity continues to be the
most dynamic part of the Soviet aid program in
the Middle East. Some 3,000 Soviet military tech-
nicians and advisers were present in Egypt in
1969, by far the largest Soviet military advisory
contingent in any of the less developed countries.
Although the USSR emphasized training rather
than large-scale rearming of Arab forces, it did
provide modern Soviet military equipment,
principally to Egypt, Syria, and Iraq. This aid
probably has maintained inventories at about the
level obtaining prior to the June 1967 Arab-Israeli
war. Soviet deliveries of SU-7 and MIG-21 jet
fighters to Egypt initially brought the ratio of
supersonic to total aircraft above the prewar level.
The lack of combat qualified Egyptian pilots,
however, continued to limit the effectiveness of
the Egyptian Air Force.
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USSR MILITARY EQUIPMENT DELIVERED TO
LESS DEVELOPED COUNTRI
OF F THE FREE WORLD*
LD*
(1955 - present)
Heavy, medium, and light tanks
5,700
Armored personnel carriers
5,200
Artillery
8,500
Destroyers
22
Submarines
31
Motor torpedo and missile boats
149
Other naval craft
268
Medium and light jet bombers
298
Jet fighters
1,925
Heavy transports
93
Other aircraft
1,460
The failure of Egyptian air defense forces to
stop increased Israeli air attacks deep inside Egypt
apparently prompted Nasir to visit Moscow in
January, when he was promised additional Soviet
military aid. To bolster Egypt's crumbling air
defense, the Soviets began to deliver and install
the SA-3 surface-to-air missile system, which is
capable of intercepting low-flying aircraft, as
early as late February. The SA-3 system hereto-
fore has been deployed only in the USSR and
Eastern Europe.
In order to provide rapidly an effective
operational system in Egypt, a large influx of
Soviet personnel is taking place to man the SA-3s.
Most of this equipment has been brought in by
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sea, but the Soviets also airlifted military cargoes
to Egypt. Other equipment, such as some type of
antiaircraft artillery, probably is being brought
into Egypt to augment the SA-3 system, particu-
larly to bolster the capabilities of the air defense
system at lower altitudes.
To maintain their pre-eminent position in
the Middle East, the Soviets also have continued
to supply military aid to Syria despite political
differences resulting partly from changes within
the Syrian Government. The Syrians chronically
complain about the amount and types of military
equipment provided, but the first deliveries last
year of SA-2 surface-to-air missiles under a 1968
contract were welcomed. Damascus, however,
reduced the number of Soviet military advisers by
one half during 1969.
Soviet arms deliveries to Iraq continued on a
substantial scale in 1969. Agreements worth an
estimated $45 million were concluded, and
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deliveries were highlighted by the arrival of 18
SU-7 fighter bombers, 10 MI-8 helicopters and
two T-43 - class fleet minesweepers. Jordan's
inability to counter Israeli air raids over its terri-
tory also led King Husayn to inquire for the first
time about the availability of Soviet military
equipment.
Moscow also used military aid offers to firm
up relations with the new revolutionary regime in
Sudan. At least a dozen MIG-21s plus a few
medium transports and helicopters were delivered
last year following the renegotiation and probable
expansion of a 1968 arms pact worked out with
the previous government. As many as 200 Soviet
military advisers are believed to be in the country
installing an air defense system that includes SA-2
missiles. The small Soviet arms aid program to
Southern Yemen maintained in 1969 emphasized
the training of a large number of Southern
Yemeni aviation and naval personnel in the
USSR. The Soviets also moved rapidly to make
general offers of military assistance to the new
revolutionary regime in Libya, but that regime
has remained aloof thus far.
The USSR also is a major source of eco-
nomic assistance for Middle Eastern states.
Despite preoccupation with military affairs in
Egypt, the USSR is moving ahead on several
projects included under credits extended in previ-
ous years. The foreign-exchange costs of an alumi-
num complex, a phosphoric complex, and a ferro-
silicon plant will be over $100 million. Soviet
experts arrived early this year to work on the
phosphorous industry. Soviet oil prospecting
operations in the Western Desert also were ac-
celerated under a mid-1969 agreement, although
Western oil companies are the prime movers in
developing the Egyptian oil industry.
The Soviet Union made its first notable
foray into the Iraqi oil industry last year when it
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agreed to supply equipment and provide tech-
nicians for developing a national oil industry
there. One credit of nearly $67 million will be
used for the exploitation of the Rumaila and
Ratawi oilfields and for a pipeline from the oil-
fields to the port of Fao. This credit is to be
repaid in Iraqi oil. Under another agreement, $72
million worth of equipment and technical as-
sistance is being provided for the development of
petroleum resources in the al-Halfayah area. Some
equipment has been shipped and several experts
have been dispatched to make surveys in anticipa-
tion of drilling for oil and laying the pipeline.
During 1969, the USSR agreed to provide
new assistance to several other Middle East coun-
tries. In February, it granted $10.6 million in
credit to Southern Yemen, probably to be used in
part for land reclamation and for improvement of
roads and airfields. Jordan may be reconsidering
Soviet proposals to provide technicians for oil and
mineral exploration and to assist in establishing
technical schools. Talks on implementing the
Soviet-Jordanian economic and technical
assistance agreement were scheduled to be held
last December. In Syria construction is under way
on the Soviet-aided Euphrates Dam. Also in late
1969, Soviet experts arrived to prepare a compre-
hensive plan for Syrian oil production.
Following the coup in Sudan, President
Numayri visited Moscow and received Soviet com-
mitments for trade and economic assistance.
Moscow agreed, subject to the results of a feasi-
bility study, to provide machinery for the Rahad
irrigation project, which also had been under
discussion with the World Bank, and to supply
geological research laboratories. Soviet experts are
to help in improving cotton production and to
advise on ways to make greater use of Sudanese
railways. In early 1970, twelve Soviet railway
experts arrived in Khartoum.
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USSR-Iran economic relations continued to
grow, and progress was made on several projects.
The gas pipeline may be completed by mid-1970,
six months ahead of schedule. A dam being con-
structed on the Aras River may also go into
operation this year. Work is. continuing on the
steel mill at Isfahan, a major construction project.
The Russians also will soon assist in the recon-
struction and electrification of the Jolfa-Tabriz
railroad.
Turkey's dissatisfaction with the progress of
Soviet projects may have been assuaged somewhat
by Soviet agreement last October to almost
double a credit of $200 million extended in 1967.
The increase, which was provided for in the
original aid agreement, will be used to construct a
steel mill, considered by the Turks the most
important of five projects included in the original
credit. The other projects are an oil refinery, a
sulfuric acid plant, an aluminum plant, and a fiber
board plant. Contracts for all the plants now have
been signed and construction has begun on the
aluminum plant, the oil refinery, and the sulfuric
acid plant.
The Soviet aid effort in Africa-apparently
by tacit mutual agreement-has leveled off. Only
ten percent of new Soviet aid extended to non-
Communist countries in the past five years has
gone to Africa. This small share in part reflects
the very slow rate at which these countries have
drawn down credits previously extended. In part
it also reflects a mutual lack of enthusiasm for
closer aid ties.
A credit of over $90 million was recently
extended to Guinea for the development of the
Kindia bauxite deposits, . apparently to procure
bauxite for the USSR and Eastern Europe.
Annual exports of $20 million worth of bauxite
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will be used in part to pay Guinea's debts to
Communist countries. The USSR also is to reha-
bilitate a railroad to move ore from Kindia to the
port at Conakry.
The USSR has made new economic contacts
in two African countries-the Central African
Republic and Mauritius. A delegation from the
Central African Republic went to Moscow in
mid-December 1969, signed the country's first
trade agreement with the USSR, and discussed
economic aid, but no agreement was signed. In
August, the USSR agreed to aid the fishing
industry in Mauritius in return for access to Port
Louis for emergency repair and refueling for
Soviet fishing vessels.
The USSR has agreed to engage in geological
prospecting and mineral exploration in several
countries. In Sierra Leone, the Russians offered
to conduct geological surveys. Prospecting for
gold and diamonds in Senegal is expected to be
financed by the remainder of a credit extended in
1965 for the purchase of tuna-fishing boats.
About 80 geological experts reportedly will arrive
in Tanzania sometime this year.
The USSR may be able to reap some benefit
from the good will earned in Nigeria, where it was
the foremost supplier of military equipment dur-
ing hostilities with Biafra. The USSR reiterated its
offer to do a survey of coal and iron deposits,
probably in anticipation of constructing an iron
and steel complex. This project had been agreed
to in 1968, but it was postponed by the war.
Four geologists spent about a month in mid-1969
investigating potential sites.
Soviet economic relations with the Maghreb
states have appeared to deteriorate during the
past year despite visits by President Podgorny to
both Algeria and Morocco. The Soviet aid pro-
gram in Algeria produced little. A joint commis-
sion for economic, scientific, and technical
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cooperation established a year ago held its first
meeting in October. It produced only a draft
agreement on scientific and technical cooperation
and an aide-memoire on results of the technical
committee's discussions. Many of the projects
under the agreement made in the mid-1960s are
still only in the early stages of construction.
No new Soviet economic commitments were
made in negotiations with Morocco but, as in
Algeria, a joint commission for economic,
scientific, and technical cooperation was set up to
facilitate implementation of the aid program.
Some progress was made toward the construction
of several dams and power plants. Soviet geolo-
gists arrived in late 1969 to work at the Bou
Azzer cobalt deposits. In Tunisia, the USSR ap-
pears to be phasing out its aid programs. Most of
the projects under the 1961 agreement have been
completed, and Soviet experts are leaving the
country.
In Ethiopia, after doing a feasibility study,
the Soviets are willing to expand and modernize
the Assab oil refinery originally built by them.
For the Soviet-built cement plant at Diamou in
Mali, the USSR offered $800,000 to cover start-
up costs. The USSR also agreed to provide $8
million in equipment and technical services for a
cotton spinning mill in Uganda under a 1964 line
of credit.
Although Moscow dispatched a sizable eco-
nomic delegation to Somalia in December, two
months after the coup, no announcement has
been made of any new economic commitments.
The delegation was expected to discuss both debt
rescheduling and the lack of progress at several
Soviet projects, including two state farms.
New aid initiatives also have been lacking in
Asia. The only Soviet aid extended to a South
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Asian country last year involved a $20 million
credit to Pakistan to finance additional oil explo-
ration. Soviet projects in Pakistan under earlier
agreements, however, made little progress. Mos-
cow turned down. a request to finance construc-
tion of a proposed steel mill at Kalabagh on the
basis of a Soviet feasibility study completed in
mid-1969. Another Soviet study completed
during the year recommended that the proposed
construction of a nuclear power plant in East
Pakistan be delayed until 1976.
Soviet-aided construction in India still is
lagging in part because of that country's con-
tinued economic problems. New Delhi's re-
luctance to move ahead rapidly on investment
programs has put all Soviet projects behind
schedule, including the Bokaro steel mill, which
in recent years has accounted for the bulk of
drawings on Soviet credits. Moscow continued to
resist Indian efforts to use Soviet credits ear-
marked for heavy industry to finance imports of
Soviet fertilizer, petroleum, and other needed
commodities.
Premier Kosygin's visit to Afghanistan in
May highlighted the completion of a polytechnic
institute and a land reclamation project, both
financed by Moscow. Aid deliveries for other
Afghan projects declined from the relatively high
levels of recent years, and little was accomplished
in implementing Soviet projects under $127-
million worth of credits extended in 1968.
There were no dramatic developments in
Soviet military assistance to the subcontinent al-
though the Soviet defense minister visited both
India and Pakistan last year. India continues to
receive all types of military equipment, but recent
emphasis has been on naval equipment. In 1969
New Delhi received two F-class submarines and
the third of five Petya-class escort vessels. It also
signed a contract for eight Osa-class missile patrol
boats and other naval equipment valued at an
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estimated $33 million. Negotiations probably
were concluded between the two countries for
the production and assembly by India of an im-
proved version of the MIG-21 jet fighter. India
also received 18 SU-7 fighter bombers under pre-
vious agreements.
Strains in Moscow's relations with the new
military government in Pakistan apparently are
causing the Soviets to delay implementing out-
standing military agreements there. Although the
USSR made an initial delivery of some 60
medium tanks earlier in the year, contracts for
additional tanks and other equipment under a
1968 agreement remain unfulfilled. The Soviets
did complete an early warning radar installation
in Dacca begun early in 1969 and delivered addi-
tional helicopters ordered under a commercial
contract. Afghanistan last year received the first
three SU-7s of at least a squadron expected to be
delivered this year after a number of Afghan
pilots currently receiving flight training in the
Soviet Union return home.
Soviet economic aid programs in Southeast
Asia were moribund in 1969. The only new aid to
this area since 1966 involved a $1.7-million credit
extension to Burma for the rehabilitation of a tin
and tungsten mine. Projects under earlier agree-
ments were either never begun or now have been
completed. A Soviet economic delegation that
visited Indonesia in the fall and a subsequent visit
to Moscow this year by Djakarta's foreign minis-
ter made little headway in rescheduling Indo-
nesia's $800-million economic and military debt
to the USSR. Talks did confirm, however, Mos-
cow's willingness to resume aid to Indonesia once
the debt issue is settled. Less than half of a
$10-million cash purchase agreement of 1967 for
military spare parts has been utilized.
Toward the end of the year, Moscow pro-
fessed a renewed interest in the activity of the UN
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Commission for Asia and the Far East (ECAFE).
This more positive position on Asian cooperation
probably is motivated in large part by Soviet
concern over China's future role in Asia. In the
past, Moscow has used ECAFE primarily as a
propaganda forum to denounce the US, and
Soviet aid offers to the organization have been
infrequent and generally unacceptable. Despite
renewed interest, Moscow probably still believes
that it can best advance its own interest through
cooperation with Asian states at times of its own
choosing.
The USSR is applying stringent criteria in
negotiations to expand its economic contacts in
Latin America. Moscow increasingly is weighing
the short-term political impact of its foreign eco-
nomic dealings in this area against long-term costs
and prospects. This is clearly evident in the
USSR's negotiations with Bolivia and Peru.
The Peruvians have been actively seeking
offers of Soviet financial and technical assistance,
particularly for a major irrigation project in
northern Peru. Although Soviet technicians re-
portedly have examined the feasibility of the
project as well as completed surveys of certain
Peruvian mineral resources, Soviet negotiators
have avoided any blanket offers of assistance.
Negotiations are under way for a $30-million
credit to Peru to finance the purchase of agri-
cultural machinery for agrarian reform, but no
final contract has yet been signed. This offer
probably involves the shorter repayment terms
typical of Soviet trade credits-ten years or less-
and not the extension of long-term aid credits.
The USSR also has shown some interest in Peru's
growing copper industry and may have offered to
construct a copper refinery, but no details of such
a proposal are known.
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The Soviets have yet to extend any eco-
nomic aid to the new Bolivian Government, and
have reacted with caution to Bolivian economic
proposals. The USSR refused to pay cash for
Bolivian oil last November-following the nation-
alization of the Bolivian Gulf Oil Company-but
offered instead a barter deal involving Soviet
machinery. At present, Moscow does not appear
prepared to offer any more than scientific and
technical aid to Bolivia's extractive industries. A
Soviet technical team visited the country last year
to examine mining procedures, particularly in the
tin industry.
Soviet efforts to broaden economic ties sub-
stantially through use of trade credits continue to
meet with little success. A $20-million credit
agreement, which has been under intermittent
discussion since 1967, was signed last year with
Uruguay. The terms of the export credit were not
spelled out, but Uruguay will probably purchase
Soviet capital goods to be paid for largely with
traditional Uruguayan exports over eight years at
three-percent interest.
Economic relations have failed to expand
under. similar credit arrangements that Moscow
has with Chile and Brazil. Despite talks held by a
Soviet economic delegation that visited Santiago
last year on the utilization of some $55-million
worth of Soviet credits extended in 1967, trade
has not prospered, and the credit has hardly been
touched. Brazil and the USSR agreed to extend
for five years the time limit of the 1966 Soviet
credit that was due to expire last August to cover
85 percent of the value of some $100-million
worth of industrial equipment. It is unlikely that
any significant deals will be generated under this
credit. The private sector, for which the bulk of
these trade credits are made available, remains
skeptical about the quality of Soviet goods, the
compatibility of Soviet equipment with that
obtained from Western companies, and the availa-
bility of servicing and spare parts.
Other credit offers to move Soviet goods
into Latin America were made last year. The
Soviets continue to be active in offering civilian
transport aircraft on attractive credit terms, but
no sales have as yet been made. Since making its
first sizable purchase of coffee from Costa Rica in
1968, the USSR has been urging Costa Rica to
purchase Soviet products, and reportedly offered
a credit to improve the port of Limon on Costa
Rica's Caribbean coast.
Special Report _10-
SECRET
17 April 1970
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/03/28: CIA-RDP08S01350R000602100001-8
Declassified in Part - Sanitized Copy Approved for Release 2012/03/28: CIA-RDP08SO135OR000602100001-8
Secret
Secret
Declassified in Part - Sanitized Copy Approved for Release 2012/03/28: CIA-RDP08SO135OR000602100001-8