SINO- SOVIET FOREIGN ECONOMIC POLICIES AND THEIR PROBABLE EFFECTS IN UNDERDEVEL

Created: 3/26/1957

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INTELLIGENCE ESTIMATE

NUMBER7

(Supersedos

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

IN FULL

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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 towardareas and their probable effects.

CONCLUSIONS

Although Bloc capabilities for expanding these programs arecompeting 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 expandlower rate than

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 alertromise of political gain in return for economic assistance andtrade. Western economic policies or conditions adversely affectingunderdeveloped countries wouldcertainly enhance Bloc

In the Middle East and Asian countries which are already the recipients of major

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economic programs. Bloc prestige and opportunities for exercisingwill probably be maintained and may continue to grow. However,ties with the Bloc are not bylikely 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.

n the longer run, Bloc economicwill provide opportunities for the propagation of Communist ideas andin politically unstable states. The Bloc isreater presence in countries which will be undersevere internal strains as they seek to

develop and modernize their economies.

hc 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 groupsa status which they welcome. The availability of Bloc assistance will not only tend to raise the price to thc West of exercising influence through aid instates,it mayake suchore necessaryorecondition of maintaining Western positions with allied states.

DISCUSSION

OBJECTIVES OF BLOC FOREIGN ECONOMIC POLICIES

Recent Sino-Soviet policies In theunderdeveloped areas of the free world have had the objective not only of Increasing Bloc prestige und influence but also ofneutralist policies and lessening Weslern influence in those areas, including the undermining of lhc structure of Western alliances and bases. To these ends. Blocseek to identify themselves with thc strong forces of nationalism and the strivings of most underdeveloped countries for economic betterment, and lo channel these forcesestern positions and Influence. Bloc foreign economic policyIn lis arms, trade, credit, and technical assistance programsis an integral pail of the Bloc's general policy of political warfare against the Wesl, and is directed toward the same general objectives.

The stream of Bloc missions offeringequipment and technical assistance tocountries during thc past two years has playedumber of themes These missions have emphasized the success

of Communism in providing rapid Industrial expansion in the Bloc countries and thewhich the underdeveloped countries could obtain by establishing closer relations with thc Bloc. At Uie same time, they have sought to exploit weaknesses in Western policies or relations with less developed countries. The US is pictured as seeking lo 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 bytrying to keep underdevelopedIn the "colonial" status of producers of raw materials for the continued enrichment of lhe West. In such ways, the Bloc has sought both to utilize and U> aggravate the currents of suspicion against thc West which are inegacy of former Western domination in many of the underdeveloped countries.

n lhe Middle East, arms and other trade deals have been used to strengthen regional opposition lo the Baghdad Pact and loSoviet influence. Credit and technical

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bulk large in the Soviet policy of re-enforcing neutrality In thc uncommitted states of Asia. Soviet leaders also seek by offers of trade and assistance to loosen the ties of states allied with the West. Forthe USSR liasredit0 million lo Turkey to assist In its development program, and Intimations have been made to Pakistan that substantial credits would be available if itore impartial policy as between Western and Bloc countries.

In its economic overtures tocountries, the Bloc isosition to combine business with politics. Industrial development In the USSR and Easterncountries, with their increasinglycapital goods production and rising costs of food and raw materials,ound economic basis for increased trade with less developed countries. The ability of the Soviet economy to absorb Imports from thesemeans that the USSR can operate most of its programs with considerable economic benefit or at least without serious netdisadvantage. For example, when thc Bloc sold surplus arms to Egypt at bargain prices in return for cotton, there were almost certainly economic as well as politicalto the Bloc. Agreements for the large-scale purchase of Burmese rice not only provided opportunities for expanding Bloc contacts with Burma but served tolow levels of food consumption inBloc countries.

Considerations of economic advantage are probably greater in the case of theEastern European Satellites, whicha wide range of imported raw materials. Within the limits set by their commitments to the Bloc, thc Satellites have rapidlyLhcir trade in economicallymarkets in less developed areas. However, the USSR has Involved thein credits and trade activities,in Egypt. Syria, and Yugoslavia, more directly related to Soviet objectives than to Satellite economic advantage.

Despite elements of economic benefit, we believe that Soviet credit and technicalprograms as they have thus far evolved

areargeanifestation of Soviet political Interest In the countries concerned. Tho four countries which have signed major credit agreements wllh the USSR areIndia. Indonesia, and Afghanistan. While Yugoslavia is an Important potential source of certain Bloc raw materialthe recent action of the USSR inthe implementation of agreements which would have been repaid insuggests that in the Soviet calculation political considerations are over-riding. India can supply some Industrial raw materials,ron 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 realised over the short term. Also, while thc 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 excess0 million.

In some Instances the Bloc leaders are probably seeking through trade and credit programs toegree of economicwhich would not only tend to aflect policies of the countries concerned but could in time facilitate Communist infiltration and subversion. The lavish aid to Afghanistan and attempts toajor dependence on Bloc markets lor the primary exports of Egypt and Burma were probably designed to obtain influence over their policies. Thereanger over the long run for smallwhose economic stability Is heavilyon the exports of primarywhich non-Communist markets cannot wholly absorb. On thc other hand, larger and relatively more diversified economics 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 theajor leverage over their economies.

Even though the Bloc leaders may see some disadvantages in strengthening non-Conimunist governments by large-scaleassistance, these disadvantages are fn lhcir view probably outweighed by the pros-

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of short-run political gains and theover the longer term of affecting the development of economic Institutions andorganizationanner favorable to Bloc objectives. Economic programs offer Blocajor opportunity tothemselves into areas where theirhas hitherto been small. By these means thc Bloc expects toreater presence in politically unstable countries likeThe Bloc leaders probably recognize that Communist parties In the free world Asian countries arc too weak to attain power without more directly merging their programs with the strong nationalhey almost certainly calculate that theirprograms identify the Bloc as aeconomic force ln world affairs and directly associate it with thc nationalof 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.

aim of Bloc economic andIs to encourage the recipientlo develop institutions in theSoviet leaders probably believeconstruction of industrial plants andprojects in the uncommittedcredence to claims lhat the Bloc Isthan thc West to the desirescountries forand enhances the appeal of theof organizationystem which iseffective for producing rapiddevelopment. The dislike ofwhich exists in the Westernis less widespread in areas wherepeople live in poverty and have littlewith other than autocraticThe challenge is to thethe political and economic system ofto the problems ol lhe

IL THE IMPLEMENTATION OF SINO-SOVIET FOREIGN ECONOMIC POUCY

the last year, Bloc economicwith underdeveloped countries have

grown dramatically. The effort has Included overtures to almost all the underdeveloped countries and hasajor element in Bloc diplomacy with nine of Ihem. Credit agreements Increased8 million5evel4 billion' Tn addition, credit offers of0 million are outstanding. There has been little grant aid otherotalillion being given by Communist China to Cambodia and Nepal. Compared with relatively few Bloc specialists: In underdeveloped areas during earlier periods, there were6mployed for periodsonth or more, primarily in the Middle East and Asia.

ia. The major part of the credits beingby the Bloc in underdeveloped areas have been for economic developmentthe purchase of industrial equipment and plants and the furnishing of relatedumber of countries havesuch credit and technical assistance from thc Bloc, these programs areonly with respect to Yugoslavia. India, Afghanistan, and Indonesia. The terms of the credits in general appear quite liberal. Interest rales in most casesand provision Is often made for at least partial repayment in commodities. Ineconomic 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 alsoumber of cases by the selection of projects which have particular appeal to local populations or which produce impressive resultselatively short time.

n nil its foreign economic programs the Bloc has attempted to expand trade or toasis for trade where noneexisted. Agreements, fairs, andcampaigns extolling the progress of the Bloc, as well as the excellence of lis products, have been used. triking feature of recent

'About SJSO million ol Ihe Bloe credit* were for Ui* uie OfIn the Middle EasternSec Annex for specific data on Uie Bloc'i economic acttvlUes In underdeveloped areas.

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trade tactics has been the adroitness with which attractive offers have beento countries with financial difficulties or with surpluses of primary commodities.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 ln volume in world markets. When Iceland had balance of paymentsthe Bloc came forward with large-scale trade agreements. Such agreements are welcomed by many governments In theworld as tending to stabilize their externalhe attractiveness of Bloc trade practices has been heightened by offers of "tie-in deals" involving credits andassistance as well as export outlets.

oor record under earlier trade agreements. Bloc countries have, during the past two years, improved their reputation as trading partners. Tlie 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 llurmese wanted.the USSR has taken steps to ameliorate this situation, and in general Bloc countries have been unusually expeditious In theof credit agreements. Although there haveew instances of friction. Bloc specialists haveeputation for competence, discipline, and unobtrusive living.

Recent trade trends generally reflect thc efforts of the Bloc to expand its economic relations. Bloc trade with underdeveloped areas was running at an annual rate4 billion during the first six monthsore thanercent above5 level and nearlyercent greater thanhe expansion6 was largely thepectacularly increased level of tradeelatively small number ofThe most prominent gains werein Bloc trade with Burma. Yugoslavia, Egypt, and India. Substantial gains were also made In trade with Iceland, Greece, and Malaya, allhough In Latin America tradesignificantly with Argentina and Cuba. Despite recent Increases, thc Bloc still hs

se

,3

Iceland

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Yucoalavla Burma Turkey Ceylon Iran Greece Argentina Indonesia Pakistan India Malaya

year, generally six to cleht months

loc assistance, though small Inwith the total volume of grants andflowing from the US, looms relatively large In lhe competition for Influence in theslates of the Middle East and Asia, where thc Communist effort is concentrated. Thc major part of US aid to the Afro-Asian regions Is concentrated In South Vietnam, Pakistan, the Republic of China, and theof Korea and is largely for military assistance and related defense supportMoreover, with the possible exception of India, the countries which are majorof 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. BIOC CAPABILITIES

he centralised control of the economies of Ihe USSR and its European SatellitesBloc leadersonsiderable political and administrative capacity to operate an effective foreign trade and aid program. The Soviet leaders can allocate resources forassistance from their large andflexible industrial capacity withoutio go through the processes ofor public justification. They can import commodities which are not badly needed,prices, enter into long term commit-

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and generally adapt their Initiatives to the demands of special situations.when important interests are Involved, the USSH can act with considerable dispatch and maneuverability in its dealings with the underdeveloped world. There Is considerable evidence that Bloc programs have beenby the USSR.

The USSR commands the economic and technical capability to sustain and. In time, expand substantially Its trade and creditprogram. It isargeof basic capital goods which arc In heavy demand In underdeveloped countries and can advantageously absorb large imports of raw materials. It has enough technicallypersonnel for the operation of foreign assistance programs, and its facilities for training technicians from underdeveloped countries are considerable. While thereound economic basis for an expanding level of trade, exports under long term creditsforegoing the domestic use of resources, at least temporarily. Moreover, during the latter parthe USSR undertook credit commitments and other concessions to the Eastern European Satellites totaling overillion. However, shipments under Soviet credlls to both Satellite and non-Blocarc to be phasedumber of years and In any one year willraction of one percent of Soviet gross national product. Such commitments are well within Soviet capabilities.

Nevertheless. Bloc leaders are likely to be more careful in allocating additional resources for use outside the Bloc in the immediateThe unsettling events in Easterncoupled with the lag in the development of energy nnd raw material resources, haveownward revision In lhc goals of7 Soviet economic plan and probably of the Sixth Five Year Plan, and have hadon planned economic goalsthe Bloc. Efforts to deal with theseand to ensure the continued rapid rates of growth in the Soviet economy, probablyighter allocation in supplies ofmachinery and equipment for thc next couple of years. While the allocation of re-

sources for Important additional foreignwould be relatively marginal to Soviet gross capabilities and would have negligible effects on longer term internal plans, It Is probable Uiat Soviets leaders will seek to phase deliveries under new foreign credits more heavily in thc periodor example, the recent Soviet credit to India forillion provided for

The more industrialized Eastern European Satellites have the capacity for Increasedof certain capital goods for export and will probably be able to providesupport to Bloc programs Incountries Czechoslovakia and Easthave 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 underInducement to increase such exports in order lo obtain raw materials which are becoming moreroblem for the Bloc. Consequently, the USSR is likely tourther, possibly substantial, expansion of Satellite trade with non-Bloc underdeveloped areas In the next few

Communist China is increasing Its par-Ucipation in the Bloc economic campaign, particularly In non-Communist Asia.6 the Chinese Communistsomplete factory to Burma and undertook to construct four small plants in Cambodiarant basis. The capability of Communist China for exporting capital goods is small, but the progress of Its industrialization In thc next few years and its eagerness to demonstrate this progress mean that it will probablyomewhat larger volume and wider range of machinery and light manufactures in Southeast Asian markets.

IV. SUSCEPTIBILITY OF UNDERDEVELOPED AREAS TO BIOC ECONOMIC DIPtOMACY

has been noted. Bloc economicIsacel of total Bloc foreignlhc attitude of eachlownrd Bloc economic approachesconditioned by political as well as

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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 naUonal objectives, and their estimates of how far they can go in accepting economic relations with the Bloc without prejudicing relations with the West.

Thc underdeveloped states are obsessedetermination to preserve andtheir 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 lend to associate Western capitalism with colonial domination. Many do not believe that economic relations with the Blocreater 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 tlie same time thereidespread desire to remain aloof from close political ties with either sidereat power struggle which mighteneral warn the context of these bask poliucal feelings that thecountries weigh the implications otrelationships with the West and the Bloc.

The desireull measure of political independence is accompanied throughout the underdeveloped world by increasingfor the fruits of economicumber of these stales 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 poliUcal stability would be threatened. But local capital resources arc in most cases wholly inadequate to support the investmentwhich these countries wish. Nor have free world capital market! and olherarrangements provided development funds of thc magnitude desired. Hence, they look with .increasing eagerness lowaids any foreign sources which givef furnUhjng

the desired capital investment with therisk of poliUcal involvement

In many of the underdeveloped countries, the exportew primary commodities, for which the free world has traditionallyvirtually the only market, is anfactor in government revenues and In the level of national income. These countrieswelcome Increased trade relations with the Bloceans of providingpurchasers, as well as furnishingfor commodity surpluses and for other goods which are noncompetitive in free world markets. For example. Iceland. Ceylon,and Greece have turned lo Bloc markets for important segments of their trade?there have been serious lags andin free world markets for primary products, which have affected the economic positions of countries like Burma. Egypt.and more recently Ghana, and have tended to Increase their susceptibility to Bloc offers of trade

In itself, the economic dependence of an underdeveloped countryoreign power is unlikely to involve subjection to political control by 'he latter. This is particularly the case as long as alternative channels of trade are kept open and alternative sources ofcan be made quickly available Thc Bloc has attained an important role in themaikclsewceland and Egypt Afghanistan will have substantial difflculllcs in repaying the large credits it has received from the Bloc. Such circumstances inevitablyactor in the poliUcal calculations of thc governments involved.ngci, particularly for small states,redominant economic dependence on thc Bloc, is thc opportunity provided to the latter lo exploit political and psychologicalespecially In cases where these stales increasingly isolate themselves from Western channels nl trade and assistance However, evennrse stales the strongly nationalist attitudes combined in many casesyper-sensitivity lo the prerogatives oftend lo limit their suscepUbility to poliUcal rontiol.

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East and South Asia. Blocdiplomacy has been mostEgypt and Afghanistan, which havepredisposed toward policiestheir dependence on the Westhave been unable to obtain fromeconomic, military, and technicalln the amounts and on thcdesire. They have also welcomedsupport in local disputes withand. in the case of Egypt, withof the Western powers. Syria andarc similarly motivated. AlthoughIn Soviet political andIndia has welcomed Bloc as wellaid in advancing its ambitiousprogram.

Idea of Bloc assistance IsIn other states of theeans of stimulating Westernunless strongly anti-Westerngain control, as may be the case Inthese states will probably continueBloc offers of assistance with somelest they jeopardize profitableor unduly expose themselves toinfluence. These Inhibitions to theof economic commitments toare particularly strong in the stateswith the West and in Saudi Arabiawhich benefit substantially by theirthe West and in addition have strongsuspicions about theumber of theseGreece and Turkey, haveby economic advantages lowith the Bloc. Moreover, there arein many of these slates whichacceptance of Bloc aid both for thebenefits involved and as evidenceindependence trom theecline in the value of theiror in the lisks of forfeiting themdealing with the Bloc, some olwould piobably be receptive to atBloc developmental assistanceremains reluctant to acceptthe Bloc. Soviet proposals suchillion credit offer maytempling if the Turks fail to obtaindevelopment funds from tlie West

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pending stabilization of their economy.incentives to acceptance of Blocaid are likely to remain less In the oil producing stales, whoso revenues make them capable of meeting long-termexpenses without major outside capital assistance

t least so long as Nasser remains InEgypt will continue to bo the focal jwlnt of Soviet activity in the Middle East. Aportion of future Egyptian exports is already mortgaged to the Bloc in repayment for the substantial arms shipments andassistance provided thus far.Nasser will probably continue to look toward the Bloc for help because of his desire for material and diplomatic support inJilsdifficulties with the Western powers and his probable belief that the Bloc provides the best marketajor 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 aboul falling under Soviet domination and would probably welcome countervailing<and parUcuIarly US) support if he were convinced it could be obtained on termsacceptable to him. However, he would almost certainly wish toree hand in making new economic deals with the Bloc and In promoiing the acceptance of Bloc arms and assistance by other Arab countries.

The Afghan government's keen Interest in the Eisenhower proposals and Its recent moves toward rapprochement with Pakistanesire to restore some balance in its foreign diplomatic and economic relations. However, Afghanistan's location and the fact lhal it is already heavily commuted to the Bloc with respect lo trade, developmental aid. and military assistance, make lt likely toclose economic lies with the Bloc, even If il receives substantial Weslern help.

The present government of India has staked ils domestic reputationajor developmental effort in thelie plun presently calls forillion dollars in foreign capital, of0 million seems assured,0 million of

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from the the USSR. The Indianwill probably remain receptive toassistance from the Bloc. Ceylon, whose political outlook Is now similar to that ot India, will probably be receptive to such deals with the Bloc as can be worked outdestroying the relatively favorableit enjoys in Western markets.

Southeast Asia.esult of their low standards of living and aspirations to Improve these standards, many of the Southeast Asian countries are attracted by the idea ofassistance from any source. Economic growth has_ been relatively slow throughout the area In the past few years. Thcstrength and rapid economic progress of Communist China exercise an increasingly strong attraction for accepting Communist methods and assistance. The ostensibleof the Communist countries to extend economic aid without requiring political ties or impairing the neutrality of the stales of the area lends to increase the attractiveness of the Blocource of aid. While manifestations of susceptibility to Bloc overtures havethroughout thc region, either in terms of relaxing trade controlseneral Interest in trade. Bloc economic diplomacy has so far made important progress only in Burma.and Cambodia

Thc effect of less advantageous world markets for ricen Burma's plans for development, coupled with aforeign policy, led lo long-term trade arrangements with Bloc countries. Ifcarried through, these arrangements would hove tied up almostercent oftrade and seriously disrupted economic ties with the non-Communist countries. However, an improvement in free worldfor iice led Burma substantially toIls nouls lor export to the Bloc. More recently. Burma has agreed to accept Soviet construction of six major public buildings,echnological Institute, theater, and permanent pavillion for Soviet industrial exhibits While these monuments to Soviet assistance and the presence of Blocmay have some Impact, the piesent Burmese government appears determined to

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avoid too great an economic dependence on Bloc countries.

spirations for development and thcof neutrality have inclinedand Cambodia to accept Bloc assistance. In addition toillion of grant assistance from Communist China, thegovernment hasrade agreement which. If fulfilled, would direct overercent of lis trade to Communist China, despite the fact that Cambodia has experienced no commercial difficulties Into the West. However, lt does not appear likely that the trade agreement will be fully implemented, and unless thererastic 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 raiificd, an agreementredit from thc USSR and remainslo Bloc offers of assistance. The need for foreign aid was sharpened by thc reduced availability of Dutch capital and the withdrawal of Dutch technicians sinceindependence. However, it Is unlikely that thc Bloc through economic means willignificant position in theeconomy, or In the economics of the other major trading countries of Southeast Asia, barring severe dislocations In Western markets.

frica and Latin America. Bloc economic diplomacy toward Latin American andstates has not progressed to the same degree as in the Middle East and Asia. The susceptibility ot most Latin Americanto Bloc offers is largely limited to aInterest in additional trade outlets for primary commodities in return for capital goods More potentially susceptible to Bloc offers aie Ghana, the Sudan, and lhe newly emerging states of North Africa, nil 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 currenUy planned French and US aid or If capital funds and preferential commercial advantages arc

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under Lhe auspices of the European Common Market. However, French capital and technicians continue to withdraw; and in the eventomplete rupture with France, the attractiveness of major Blocwould be greatly Increased unlessassistance wcro forthcoming from the US. Similarly, with the withdrawal ofauthority, Ghana may be susceptible to Bloc offers, both as an act of independence and because economic stability has beenby the declining price for cocoa In the Sudan, Bloc overtures have not beensuccessful to date, but might become more attractive if economic support from the West proves inadequate.

Europe. Yugoslavia Is particularlylo Soviet overtures because Titoommunist desires good relations with the Bloc, whileational leader he hasaspirations for industrializing theeconomy. However, the Yugoslavs are well aware of the dangers of Soviet economic domination While accepting large credits and increased trade with the Bloc, theycertainly wish to maintain strongtics with the West in order to avoid tooependence on the USSR.

In Lhe 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 havea shi/ting of the trade pattern away from the West. Iceland's substantialon Soviet markets contributed to the strengthening of neutralist forces and hasactor in the government's recentcalculations. Soviet repression Incombinedonsiderablein Iceland's prospects for obtaining Western currencies, has served to lessenvulnerability to Soviet economicHowever, should thereecline in international tensions. Iceland's presentwould again be more susceptible to Soviet influence. While there Ls an Incipient trend of increasing trade between Portugal and the Soviet Bloc. It is not likely toPortugal's foreign policy.

V. PROBABLE BLOC COURSES OF ACTION AND THEIR EFFECTS

new economic tactics are likelyas an Important element ofThe Sino-Soviet leaders probablythat their economic diplomacy is anmeans of expanding their politicaland docs not materiallyeneral war. At the sameeconomic ties withwill continue to offer prospectsadvantages to the Bloc. Thcbegun over the past two yearsa momentum of theirteadily expanding leveltrade with less developed countriestechnical assistance activities.

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 bo as great asoncerned with problems of Bloc solidarity and facing the prospectecline in thc rate of economic growth in the Bloc, the Soviet leadership may question thcof substantially expanding foreignassistance outside the orbit at this time. Also, the Soviet leaders may estimate that additional assistance to countries nowor scheduled to receive aid willminimal political results pending the Implementation of current projects. At the present time, only about one-third of the Bloc's program of nonmilitary credits has been implemented or Is under firm contract.

However, the Bloc will continue to be alert to situations susceptible of exploitation andromise of political gain Infor economic assistance. Additional credits and increased trade are almost certain to be offered to one or more of thc Arab states In an effort to maintain Bloc influence In this area. Btoc leaders are likely to pay careful attention lo tlie possibilities of extendingprograms to Laos and the newlycountries of Africa. The general focus of their efforts will continue to be in thc Afro-Asian areas.

It Is almost certain that thc Bloc will endeavor to meet its present commitments for

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in the Middle East and Asia,overriding internal priorities. On thc other hand, implementation of Blocto Yugoslavia has been slowed down and some of the credits may even be withheldesult of political and Ideological differences.

Probable Effects

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 majorIn the Middle Eastern and Asianwhich are already the recipients of major Bloc credit programs. Bloc prestige andfor exercising influence willbe maintained and in some casesThe expectation of continued credit benefits is almost certain toactorthc policies of even such anindependent country as India.in most of these countries economic influence will not be sufficient to confer on the USSR or Communist China anything like thc ability to directly control or even to manipulate their policies. Moreover,economic relations with the Bloc will almost certainly be productive of someand frictions which will tend to lessen thc benefits to the Bloc of ils activities.

Most of the recipient governments aresensitive to any apparent indications o! direct subversion by Bloc officials andalthough they do not in all cases have the ability to develop effective countersubver-sion measures. However, many of theseare taking deliberate measures to check thc growth of local Communist parties. In time, the prospect for the growingol Communist ideas,onsequence of economic activities, isorepotential danger. As personalmultiply between Bloc and local fellow workers, and as more and more technicians arc 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 poliiical, psychological, and economic factors which togetherthe stability of the countries involved.

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In Southeast Asia, Chinese Communist trade and aid programs and the presence of their missions willarticularly important effect on the attitudes of the local Chinese communities,

Under special circumstances. Bloc aid by contributing to economic growth and stability in recipient countries may make it morefor thc Communists to attaintate which already tends to be politically stable and which is making tolerable progress ln coping with its economic problemsthrough the combination of its own resources and Western assistanceBloc aid mightumulative effect which would be to Western advantage. This could be the case in

On thc other hand. In many countrieshave been aroused which areto be fulfilled. Under theseovernment may become unable to deal effectively with its Internal problems and turn to authoritarian solutions. Inase, the example of Communism will beand it might beocal Communist party, as the most effective availablewould assume power.

Bloc arms shipments and economic aid to states engaged in anticolonial and othergypt, Syria, and Yemen, will support Bloc policy of maintaining tensionsigh 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 thc West will continue tothe extent of their involvement with the Bloc. The increasing economicof Egypt and Syria on the Bloc, and the consequent ability of the Soviet leaders to influence their policies, will almostcontinue, whatever resolution is made of outstanding issues in the Middle East

The effects of Bloc economic programs are also potentially great in small primitive stales on lhc borders of the orbit. Afghanistan is already significantly Involved with the Blocesult of major Bloc programs. While Afghanistan is attempting to balance ilsbetween the Bloc and the West, the extent of its involvement with thc Bloc and

i

Efffk E

Its geographic location will continue to be the price ot exercising influence through for-major factors Influencing Afghan policies. eign aid in uncommitted states and may make Similarly, the acceptance of Bloc assistance suchore necessary and more expensive by Laos in substantial amounts could fairly condition of maintaining Western positions quicklyajor factor affecting Its with allied stales, economy and its policies.

evertheless, wc believe that fewThc availability to underdeveloped coun- tional slates are Ukely to enter intoof Bloc economic assistance has in some credit arrangements with the Bloc in thereduced the influence which the US future. As pointed out earlier, the Blocable to exercise through foreign aid. Hither- o reduce the rate of expansion ofthe West has been the primary sourceprograms in the next year orcapital funds and technicalthe continuing value of Westernin thc future the Bloc will providellM and Slisp,ci0ns of ^or alternative source ofmost sUtcs th[0ughoutumber of states. The disposl- feo! these states lo balance their relations a _ ' , both protagonists In the East-Westassistancewill be strengthened. Already in theWestern economic policies orstates of Asia the acceptanceaversely affecting particularfrom both the great powers has acountries would almost certainlyimportance as an assertion ofBloc opportunities. The Bloc has At the same time, thegiven evidence of an alertness toot Bloc assistance will tend toopportunities.

ET

ANNEX

STATISTICAL DATA ON BLOC ECONOMIC(INCLUDING ARMS DEALS) IN UN DKKDEVELOPED AREAS

1

Minimum Known Credits. Offers of Credits, and Numbers or Specialists Provided by thc bloc to Underdeveloped Countries

Recipient Countries

Credit Offers Ortdlti outstanding Accepted ils1 OSS jj.pcc. ISM <millions Of US dollars)

380

MM

S

1

5

M

u

iio 85

23.

"m

5 30

35

SIIS

5 10

Middle East

Egypt

Arabia

_ _

Turkey

and

Asia

Europe

America

J

343

GRAND TOTAL

TABLE 2

Total Bloc CredlU Accepted and Underby Types of Prelects as olecember

Type of Projccti'i

Percent

CredlU Accepted Plus Those under Consideration

fmillions1 dollars)

0

end Power

1

Development and

and

ull orvs

MaterUls and

Equipment rue*.

includes)

redits which have not been committed or tor which no reliable project breakdown can be determined on Uie basis of present information.

TABLE 3

Arms CredlU Extended by Uie Soviel Dloc lo Underdeveloped Countries

of USBloc

9

Yemen Total

Original document.

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