SINO-SOVIET BLOC ECONOMIC ACTIVITIES IN UNDERDEVELOPED AREAS 1 JULY-31 DECEMBER 1958

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP92B01090R000400010007-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 31
• Document Creation Date: December 19, 2016
• Document Release Date: January 25, 2006
• Sequence Number: 7
• Publication Date: February 27, 1959
• Content Type: REPORT

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CONOMI; INTELLIGENCE REPORT
SINO-SOVIET BL )C ECONOMIC ACS I
IN UNDIDt 1, EVELOPEI AREA
JULY - 1 :DcEBER 1858
EIC--R14-S6
27 1ebtucry 1959
ECONOMIC Ih `E'_LIrENCE COMW.I
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ECONOMIC INTELLIGENCE REPORT
SINO-SOVIET BLOC ECONOMIC ACTIVITIES
IN UNDERDEVELOPED AREAS
1 July - 31 December 1958
EIC-R14-S6
ECONOMIC INTELLIGENCE COMMITTEE
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FOREWORD
The reports on Sino-Soviet Bloc economic activities in under-
developed areas in the EIC-R14 series provide periodic summaries and
analytical interpretations of significant developments in the eco-
nomic relations of Sino-Soviet Bloc countries with underdeveloped
countries of the Free World. These developments are reported on a
current, factual basis in the Biweekly Reports in the EIC-WGR-1
series, under the same title.
This report, covering the 6 months from 1 July through 31 Decem-
ber 1958, constitutes the sixth periodic supplement to EIC-RlL, the
background report on Sino-Soviet Bloc Postwar Economic Activities in
Underdeveloped Areas, 8 August 195 , SECRET. This supplement was
prepared by a Working Group of the Economic Intelligence Committee,
including representatives of the Departments of State, the Army, the
Navy, the Air Force, Commerce, and Agriculture; the International
Cooperation Administration; the Office of the Secretary of Defense;
and the Central Intelligence Agency. It was approved by the Economic
Intelligence Committee on 11 February 1959.
For purposes of this report, the term underdeveloped areas i~-
cludes the following Free World countries:~1) all countries in Souti
and Southeast Asia; (2) all countries in the Middle East, including
Egypt, Sudan, Turkey, and Greece; (3) the independent countries of
Africa, except the Union of South Africa; (4) the European countries
of Yugoslavia, Iceland, Spain, and Portugal; and (5) all independent
countries in Latin America.
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CONTENTS
Summary . . . . . . . . . . . . . . . . . . . . .
Paje
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Next 3 Page(s) In Document Exempt
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SINO-SOVIET BLOC ECONOMIC ACTIVITIES IN UNDERDEVELOPED AREAS
1. JULY - 31 DECEMBER 1958
Summary
During the last 6 months of 1958, Sino-Soviet Bloc economic rela-
tions with underdeveloped countries of the Free World continued to ex-
pand, broadened in scope, and provided additional evidence of the rp-
portunistic nature of the Bloc's economic and military aid programs.
While generally maintaining a satisfactory level of progress in imlle-
menting developmental and military aid agreements previously concluded,
the Bloc continued to exploit political and economic difficulties and
succeeded in concluding important new aid agreements. The total of new
credits extended in 1958 amounted to more than $1 billion.* This sum
represents more than a threefold increase above 1957 extensions and
marks a new peak year in contrast with earlier years when the annuel.
increase averaged about 25 percent. With respect to the trade of tiese
underdeveloped countries with the Bloc, however, the rate of increase
for 1958 fell to about 1i percent. Bloc capabilities could easily sszs-
tain substantial expansion of the Soviet economic offensive.
Recent information indicates that a new pattern has been Afevelooed
for coordinating the Bloc's economic offensive in underdeveloped coxin-
tries. The precise form is not yet clear, but it appears that a nutaber
of projects listed in Soviet economic aid agreements will be d.istri?hute(
to other Bloc countries. This form of cooperation emerged in the M-ddlt
East as the USSR began to implement its economic aid agreements with
Egypt and Syria. Apparently the USSR will arrange or provide the credit
to cover the foreign-exchange costs for a number of the projects, and
the European Satellites will undertake the construction work. This
technique will provide the USSR with the means of exercising more crnn-
trol over Satellite activities in the underdeveloped countries and Ft
the same time bring to bear substantial Soviet influence on economic
development within the recipient countries.
In a propaganda coup the USSR agreed to provide Egypt with a de-
velopment credit for $100 million to cover the foreign-exchange costs
of the first stage in the construction of the Aswan Dam. The 1JSSR is
providing Egypt with still another $100-million line of credit for tae
purchase of arms, further enmeshing the economy of the United Arab
Republic (UAR). Iraq arrived at its first financial agreement with a
Bloc country when the USSR agreed to provide a $118-million line of
All value figures in this report are given in US dollar equivalents.
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credit for the purchase of arms. Argentina became the first Latin
American country to accept a sizable development credit from the
Bloc. The conclusion of a $100-million aid agreement with the USSR
to be utilized for the development of Argentina's petroleum industry
may well serve to whet the appetites of other Latin American coun-
tries which seek large amounts of development capital but frequently
are wary of foreign private investment.
The cumulative total of Bloc credits and grants extended since
the beginning of the economic offensive now amounts to about $2.4 bil-
lion, of which about $1.6 billion is economic aid and about $780 mil-
lion is military aid. The extension of approximately $490 million
in new credits during the last 6'months of 1958 raised the total ex-
tensions in 1958 to more than $1 billion. The USSR accounted for
more than.85 percent of new credit extensions in the last 6 months of
1958. Total Bloc credits extended for the purchase of arms account
for more than 45 percent of the new credit extensions in the latter
half of 1958 and for about one-third of total credits extended by the
Bloc since the beginning of the Bloc's economic offensive.
Although the Bloc succeeded in broadening the scope of its aid
program, a relatively small number of underdeveloped countries still
accounts for the bulk of Bloc credit extensions. The UAR received
about $950 million, almost 40 percent of total extensions; India and
Indonesia received about $36o million and $300 million, respectively,
and together account for about 25 percent of the total. Credit ex-
tensions to Afghanistan and Yemen, although small in a comparative
sense, are significant in economies of their size.
It is estimated that somewhat less than 40 percent of the total
value of credits extended by the Bloc has been drawn, and well over
half of the drawings have been applied to the purchase of arms. The
countries which have developed a greater financial dependence on the
Bloc, for the most part, have been those countries which have received
military aid from the Bloc over an extended period of time: Egypt,
Syria, Afghanistan, and Yemen. Heavy repayment burdens combined with
the domestic cost of maintaining large military establishments compli-
cate the already serious financial problems which these countries face,
thereby making them susceptible to further Bloc economic blandishments.
The UAR has drawn at least $420 million, more than 90 percent of which
went. for arms purchases; approximately half of the credits drawn by
Indonesia and Afghanistan have gone for arms; and the bulk of Yemeni
drawings also has been for arms purchases. Yugoslavia and India
(which have not accepted arms credits) are the only other countries
with sizable drawings upon Bloc credits. Their economies, however,
have a broad enough base so as not to be seriously affected by these
credits.
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The services of at least 4,000 Bloc technicians were utilized ii.
underdeveloped countries during the last 6 months of 1958. About 7)
percent of these technicians were engaged in economic activities.
The distribution of these technicians closely parallels the distribu-
tion of Bloc credits. Almost 30 percent served in the UAR; and,
Afghanistan, India, Indonesia, and Yemen accounted for most of' the
remainder. The largest influx of Bloc technicians during the _ast
half of 1958 was noted in the UAR, Yemen, Afghanistan, and India.
In the UAR, large numbers of Bloc technicians were engaged in geo-
physical surveys. A number of technicians from Communist China ar-
rived in Yemen to implement the Chinese Communist - Yemeni aid. agree-
ment. More Soviet technicians arrived to work on the Bhilai steel
mill in India and to undertake petroleum surveys in Afghanistan.
Additional groups of military technicians entered the UAR, Yemen,
Afghanistan, and Indonesia under existing military aid agreements.
During the time these agreements have been in effect, Bloc advisers
have assisted in reorganizing the military establishments of the UAI,
Yemen, and Afghanistan and have engaged in teaching Bloc military
doctrine to indigenous military personnel.
By the end of 1958, approximately 3,200 trainees and students fzom
underdeveloped countries, including 1,950 military personnel, bad
undertaken training in the Bloc. The opportunity for ideological in-
doctrination is apparent, and the "demonstration effect" of the sci?n-
tific, technological, and industrial progress of the USSR also can to
expected to exert an influence on the thinking of these trainees.
Sino-Soviet Bloc trade with underdeveloped countries of the Fre?
World during the first half of 1958 (latest data available) totaled
about $965 million, an increase of about 4 percent, in terms of valve,
above the comparable period in 1957. This rate of increase declined
sharply from an average rate of about 25 percent annually for the
earlier years of the Bloc's economic offensive. Whereas Bloc exports
increased from about $415 million to $480 million, imports declined
from $515 million to about $485 million. This apparent leveling off`
of trade reflects, to a great extent, a decline in the value of Bloc
imports from underdeveloped countries. Since mid-1957, there has ben
a general decline in the prices of many primary commodities. Among
the major commodities imported by the Bloc from underdeveloped -oun-
tries which have been affected by falling prices were cotton, wool,
rubber, and sugar. In Egypt, for example, although the value ,L' ex-
ports to the Bloc declined about 15 percent, the volume of Bloc Pur-
chases of Egyptian cotton for the cotton marketing year ending in midi-
1958 increased by about 30 percent above the previous marketing year.
As a result, the Bloc accounted for about 65 percent of Egypt's tota_
cotton exports.
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Although the Bloc economic offensive continued to mark up new suc-
cesses, it did experience some reversals. The ideological conflict
with. Yugoslavia resulted in the cancellation of the unused portion of
the Bloc's credit extensions. Icelandic imports of surplus commodi-
tie.:, from the US under Public Law 480 and the completion of a US-
financed cement plant somewhat reduced Iceland's dependence upon the
Bloc. Internal economic difficulties in Burma caused the Burmese
government to eliminate certain projects which involved Bloc assist-
ance!. Singapore and the Federation of Malaya placed import curbs on
Chinese Communist products in order to counter the Chinese Communist
trade drive. The Federation also closed the Malayan branches of the
Bank of China. These reversals, however, have been more than counter-
balanced by the magnitude and scope of the Bloc's successes.
A summary of Bloc economic activities in underdeveloped countries,
by region, follows:
Middle East and Africa.
miring the last half of 1958 the Sino-Soviet Bloc economic offen-
sivfe in the Middle East and Africa maintained its emphasis upon the
UAR and Yemen but continued to probe for opportunities elsewhere. The
Bloc concluded its first major financial agreement with Iraq while it
sought to exploit economic and political difficulties in Sudan and
other independent African states. The most noteworthy developments
of the period were the Soviet-UAR agreement, according to which the
USSR will extend a line of credit to the UAR equivalent to $100 mil-
lion to help defray the cost of constructing the first stage of the
Aswan High Dam, and the Soviet arms credit agreement with Iraq. The
former agreement is of substantial propaganda value to the Bloc as
it paves the way toward the realization of a longstanding Egyptian
economic aspiration and, when completed, will add more than 670,000
acres to perennial irrigation. The Soviet-Iraqi arms agreement is
of particular significance because it provides an avenue for Bloc
penetration into a country which is of major economic importance to
the West. The agreement reportedly involves $168 million in arms,
of which $118 million are on credit, and unquestionably sets the stage
for much closer political and economic relations between the Bloc and
Iraq.
On the purely economic side, tangible activity during the period
was mainly concerned with the implementation of existing economic
assistance agreements between the Bloc and the UAR and Yemen and with
strengthening trade relations between the Bloc and the Arab states.
In the Syrian sector of the UAR, Soviet technicians were engaged in
completing basic surveys on projects listed in the October 1957 agree-
ment. Reasonable progress was made in the ;petroleum refinery contract
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that was awarded to Czechoslovakia in 1957, and it seems probable
that the project will be completed in 1959.
In the Egyptian sector of the UAR, Soviet technicians were en-
gaged in various surveys for geophysical and industrial projects
under the Soviet-Egyptian economic aid agreement. Soviet capital
goods for some projects included in the agreement are now entering
the country. The Soviet credit has been supplemented by a $21.`-mil-
lion credit provided by East Germany under an agreement signed in
August. Tangible progress under the two aid agreements is likely to
be substantial during the first 6 months of 1959.
In Yemen, efforts were made during the period to implement both
the Chinese Communist and the Soviet economic assistance agreements
concluded in early 1958. Chinese Communist technicians arrived in
Yemen and undertook surveys of a number of projects. The final.=:on-
tract for Soviet construction of a new port at Hudaydah was signed
in October. During the period, East Germany also made an offer of
economic assistance to Yemen. Bloc countries reportedly were en-
countering difficulty in implementing assistance agreements in Yemen,
largely because of the inactivity of the Imam. Local financing cost:
apparently have caused a serious problem. In spite of these diffi-
culties, however, construction activity is in progress.
Sino-Soviet Bloc countries continued to exploit opportunities for
increasing trade relations with Arab states. They have been active
in both the Syrian and Egyptian cotton markets. During the cotton
marketing year ending 31 August 1958, approximately 65 percent if
Egyptian and 50 percent of Syrian cotton exports went to the Bloc.
Sudan's critical cotton marketing problems have brought a reversal
of traditional policy against barter arrangements. Sudan has now
signed barter agreements with several Soviet Bloc countries. Further-
more, Sudanese resistance to a pending Soviet offer of economic a.ssis;-
ance presumab'y in exchange for cotton has weakened, and a Soviet mis-
sion is expected in Khartoum shortly to negotiate an agreement.
Although agreements of major significance were not concluded with
any countries of Africa, deteriorating political conditions, economic
difficulties, and the economic aspirations of newly independent Africfm
countries continue to offer opportunities for future Bloc activity.
Ethiopia and Libya received renewed offers of aid from the Bloc, and
both accepted help in expanding their medical facilities. Guinea re-
ceived offers of economic aid immediately after attaining independence
and has already signed several trade agreements with Bloc countries.
Bloc economic relations with many African countries can be expected t(increase significantly during 1959.
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South Asia.
Afghanistan, India, and Ceylon remained the focal points of the
Sino-Soviet Bloc economic offensive in South Asia during the second
half of 1958. Pakistan and Nepal continued to be reluctant to accept
further Bloc offers. Afghanistan's implementation of projects under
the Bloc credit program has encountered difficulties mainly as a result
of the shortage of local currency and the high cost estimates of some
Soviet projects. Bloc economic activity in Afghanistan, however, con-
tinued to have an important impact on the country, and a significant
portion of the Afghan economy has now become dependent upon the Bloc.
Highlights of the Bloc's economic program in India during the lat-
ter half of 1958 included the acceptance of a new Rumanian credit, the
extension of new offers, and the satisfactory completion of various
stages of major Bloc projects under construction. Bloc credits ex-
tended to India now total approximately $305 million, including the
new Rumanian credit of $10.7 million for a petroleum refinery. The
discovery of oil in Bombay state -- although. the extent of the find
is not yet known -- produced major gains in the form of Indian respect
for Soviet technicians. Although the Indian government has had evi-
dence of susceptibility to Soviet propaganda, on the part of some
workers who had undergone training in the USSR, there was no major
change in India's receptive attitude toward Bloc overtures, nor is any
expected as long as the Indian economy is so dependent upon foreign
aid.
Ceylon's economic relations with the Bloc continued to expand dur-
ing this period with the acceptance of a new $10.5-million credit from
Communist China. Total Bloc assistance to Ceylon now approximates
$58 million. Implementation of the Soviet $30-million credit program
signed in February has been slow, with only one contract thus far
signed. This delay has been the result of Soviet and Ceylonese in-
ability to reach an agreement on projects.
Southeast Asia did not accept significant additional Bloc economic
assistance during the second half of 1958. Trade promotion activity,
particularly on the part of communist China, was intensified, however,
and was successful in promoting sales of certain Bloc textile and con-
sumer goods items. Deliveries of Bloc military equipment to Indonesia
under previous arms credit agreements continued, and negotiations
covering projects to be financed under the $100-million Soviet loan
made further progress. Other developments included arrangements with
the USSR and Communist China for the purchase of Bloc rice and a Chinese
Communist offer to extend to Indonesia additional economic aid.
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As a result of Burma's decision to seek grant aid only and to
cut back expenditures for technical assistance, the USSR is placing
a part of its aid to Burma on a grant basis. Three of the "gift"
projects are to be continued as genuine grants, but about $13.7 mil-
lion in credits proffered by the USSR for agricultural projects have
been canceled. Cambodia accepted an additional grant from Communist
China valued at $5.6 million but turned down a Chinese Communist offer
of military assistance. Implementation of the basic aid agreement
with Communist China was far behind schedule, but this lag was Jess
apparent to the public than the progress made on the Soviet hospital
in Phnom Penh. A Soviet loan offer of $12.5 million was not a