WARSAW PACT ECONOMIC AID PROGRAMS IN NON-COMMUNIST LDC'S: HOLDING THEIR OWN 198

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Warsaw Pact Economic Aid Programs in Non-Communist. LDCs: Holding Their Own6

RELEASEES9

Directorate of

Warsaw Pact Economic Aid Programs in Non-Communist LDCs: Holding Their Own6

An Intelligence Assessment

This paper was prepared byOffice

ofssues, and wasit ihe Department of State and (he Agency fot International Development.

Comments and_guer.es are welcome and maytoT?

C 'L "J

Warsaw Pad Economic Aid Programs in Non-Communisi LDCs: Holding Their Own*

The data on economic agreements reflect Ihe latest information available lo us and supersede information in our previous publications. They are derivedariety of classified and unclassified sources "

For the purpose of this report, the term Communist countries refers lo the USSR and the following countries of Eastern Europe: Bulgaria.East Germany, Hungary. Poland, and Romania. For some economic programs, such as technical services, we include data on Cuban activities where they complement or support Soviei or East European economic objectives in LDCs. The Communist less developed countries include Cuba, Cambodia. Laos. Mongolia. North Korea, and Vietnam

The lerm non-Communist less developed countries includes all countries of Africa except the Republic of Soulh Africa; all countries of Easi and South Asia except Hong Kong. Japan, and the Asian Communist LDCs listed above; all countries in ihe Caribbean and Latin America except Cuba; and all countries in the Middle East except Israel. Historical data includeillion in aid to Cambodia and Laos provided5

The term Marxist states refers to couniiies thai have identified themselves as Marxist-Leninist and lhal rely primarily or entirely on Communist military support lo maintain their power. They are Afghanistan. Angola. Ethiopia. Mozambique. Nicaragua, and ihe People's Democraiic Republic of Yemen (South Yemen)

Wjihin Ihe aid context, lhc lerms agreements, commitments, extensions. and pledges refer lo promises to provide goods and services, either on deferred payment terms or free of chargessistance is considered to have been extended when accords are initiated andormal declaration of intent. Credits with repayment terms of five years or more are included in economic aid toials: ihey are designaied as "uade credits" if amortization is less lhaneais. Concessionary aid includes all grams and credits with repayment periods exceedingears. The lerms drawings, disbursements, and deliveries refer to the delivery of goods or ihe use of service

-Seertf*'

Summary

t!ablt eiaf liOttotbr- m> waii 'ipof

Pad Economic Aid Programs in Non-Communist LDCs: Holding Their Own

arsaw Pact countries coniinued lo use iheir economic aid programs in non-Communist LDCs to increase iheir presence.xpand equipment sales, and to guarantee return flow* of hard currency and resources. Economic aid67 billion in commitments and almostillion in deliveries, about the same as in previous years. New pledges were distributed amongountries, although eight of them receivederceni of the new aid. India, which received ihe largest credit Moscow has ever provided to anon-Communist LDC, alone absorbed more than half of the new funding

As in most yeais. the Soviets provided abouterceni of the new Warsaw Pact aid. Moscow's unusuallyyear repayment lerms to India raised the overall concessionality of the Soviet program to its highest level in this decade. Nonetheless, we believe the easy terms to India do noihange in Moscow's traditional profitpolky. which relies on trade credits to finance aid dealings in most LDCs In contrast to India, credits to Nigeria and Libya probably will be repaid in oil and other hard currency resourcesuch shorter penor*

Moscow's commodity support to Marxist states has changed the character of the Soviet aid program in. Nearlyercent of Moscow's aid to non-Communist LDCs in this decade consists of commodities ihatet drain on Soviet resources because Moscow is unlikely lo collect payment from its destitute clients. Until Moscow took on large-scale support to the Marxist regime in Afghanistant had steadfastly refused to provide more than token commodity support to LDCs.6 the USSR coniinued heavy commodity deliveries to its newest Marxist client. Nicaragua, which is gaining on Afghanistan as the leading claimant of Soviet commodity aid. Last year. Managua received an0 million pledge foe oil and other resources7 and took delivery on aid goods worth0 million. We believe that commodity aid levels may be at theil limit, however, as Soviet planners try to divert resources to finance Gorbachev's ambitious domestic economic program.

Commodity aid disbursements to Marxist states have cut deeply into ihe USSR's annual profits from the economic program at the same time thai trade credits to major Middle Eastern and North African states, which promote Soviei equipment sales and hard currency income, have slumped to new lows. Nonetheless, the USSR continues to benefit from the LDC

^Secret

aid relationship with an economic presence inountries. SIear in equipment sales on credit. Jlillion in hard currency revenues from technical services, access2 billion annually in raw materials, some as aid repayments, and the abilityrovide low-risk support lo Marxist regimes such as Nicaragua and Ethiopia, where more aggressive programs could be politically risky

Economic aid commitments from Eastern Europe remained well below the SI billion markn our viewack of opportunities lo bid on development contracts, as wellrowing reluctance lo satisfy Moscow's demands that Eastern Europe commit major new resources to most Marxist states.0 million of aidledged mostly went to stimulate equipment sales in Africa and the Middle Easi

Finally. Sludent training, one of the Warsaw Pact's most effectivepenetration programs, also appears threatened by evemse believe lhat lhc USSR and Eastern Europe may judge it necessary to restrict the flow of students from LDCs as the AIDS epidemic intensifies. About one-lhird of the LDC scholarship holders in lhc USSR and Eastern Europe traditionally come from high-risk Sub-Saharan African coumries.

Joint venturesright spot in Ihe Soviet-LDC economic picture. Moscow has revised its investment laws to permit ownership in foreign ventuies. Such veniures would give theow-cost means io expand hard currency and product teturns from Third World raw materials producers in exchange for machinery and equipment as their partnership share

Warsaw Pace Economic Aid Programs in Non-CommunisJ. LDCs: Holding Tbeir Own6

assistance has been an importani element inPaci foreign policy since the USSRils full crediu lo ill Asian neighborsogether wilh mililary sales, the Kremlin and Eastern Europe have used iheir economic aid programs io con (est Wesiern influence in LDCi. io expand irade. to gain access lo strategic raw mnjcnals. and lo increase hard currency earning;

Soviei economic aid usually has noi had Ihe deep impact of the military program: il has been both smaller and harder io implement In ihe early years, when some LDCs were reluctant iooviei military presence, economic and military pledges were roughly equal. The gap widened in thend now. for every dollar in ecerraomrc atd delivered. Moscow has transferred nearly SIO worih of arms Onhe other hand. East European countries have always depended on economic ties to sustain LDC relations; economic aid pledges5 have exceededagreements by S2 billion Eatr European aid programs are designed mainly to finance equipmeni sales

Personnel exchanges have become an increasingly important component of Warsaw Pact relations with LDCs and always piovide good financial and political returns in the form of haid currency earnings and an increased technical pretence Technical services and academic training programs extendountries,hai have accepted no other foims of Communis! aio

Developments6

Warsaw Pact economic aid programs in non-Commu-nisi LDCs leached7 billion in new commit -mcntt and almost S? billion in deliveries6 The new agreements brought total Warsaw Pact aid commitments lo developing coo nines since lhcoillion, less than half of which has been delivered (see table I)

Although total aid pledged went toountries, the Pact followed ill usual practice of concentrating assistanceew traditional recipients' eight eoun-tries receivedercent of the new aid (seeoscow made ils largest single aid commitver loanbillion to India for energy and other projects. Major East European crediu went to Algeriangola and Egyptillionnd lhc Sudan (SIillion) to finance equipmeni sale

Personnela key element of Communis! penenation effortsteady source of hardaoretudentsDCs were being trained at Communist educational facilitieshe number of Warsaw Pact technicians abroad, however, dropped by more lhanercent because of austerity or war-induced cutbacks in Iran. Iraq, Libya, and Syria. Even al ihis reduced level technical services earn the USSR and its allies more thanillionear in hard currency from LDCs

ore Concessional Program6

Moscow fstodged S3n atd to non Communist LDCs6 Allhough this was about the same level asS. several developments ran counter io patterns observed in recent years:

Fewer cvunlriti rttti*ed new aid Moscow signed new aid agreements wiih onlyountries,wilhhe year before More important, many pledges required no long-ierm commitment of

'f( Mnr.ee tn aa ll peicenlxml aw ivtu niiaai ian delui. aahn-ocaatte" wu iha"is drBncrcrtari aav a* Uw am'aiiHi hi isw papo ' *oul abotrie-'i o* iiiumtoand Nipia.could bmbm k> ia*cfil billion dollar*

Europe

asm

tin Europe

10

IS

U45

50

Om ire rounded io theecause ol roundii mixo ifc* iota Isa.

only seven couniiies icceived project aid last year, comparedear on average inhis suggests ibal officials charged wiih administering the program have not received high-level guidance on negotiating new project aid. which places heavy burdens on the donor (or planning, technology transfer, training, and services.

Budgetary support doubled over moilThe USSR5 millionand grants for commodity imports andto support food programs and financeas shown in figure I. For the firsiUSSR provided substantial local currencyreceived about half ofbalance-of-payments support in rupeesMoscow is relying on easily deliveredatd (mostly oil) to forests'! Thirdabout low aid levels, to give iheof movement on Third World aid issues, andlime for orderly consideration of lhc futureoverall aid .

Aid to Marxist stales fell to its lowest level in five years. Moscow's increased budget support6 did not go lo its usual Mars.ui recipients. In fact.

new aid lo Ihis group of countiies dropped0 million, orerceni of lotal pledges (see table ') Despite this overall reduction, pledges to Nicaragua tose0 million for oil and other products7 Managua is coming close to Afghanistanajor claimant of Sovietsupport (sec table 41

Program terms were easier Moscow'sto expand iis Indian economic relationship beyond present levels of cooperation hasreversed the decline in soli loans since the USSR introduced trade credits in thesee tableoscow's1 billion credit lo finance industrial projects in India was provided oneasy terms- repayment overearsive-year grace perioderceni interest Usual Soviet terms call for repayment overo li yearsercent interest Because lhc Indian agreements comprised more thanerceni of lhc lotal program. Iheyusier of generosity to ihe Soviei program that Moscow already has used in the United Nations loihat it is moving to meet LDC demands for

Secrtf*"

Wtrstw Pact Ecoitomic Credit* and Grants Extended to6

mm tc? i

Composition of

Economic Aid Extendedon-Communist LDCs, by Type

i no

easier nd lerms This impression is reinforced by agi cementsood local costs (or India (SOS million) and0oncession rise USSR rarely allows

E.poil Promotion:ajor Coal Gorbachevs aggrrssive new policy to piornoie canons ol equipmeni and manufactures has added momcn lum lo Moscow's aidigher income LDCs. which is designed to sell Soviei equipmeni on

ihc ben terms possible6 tbc USSR added two Oil producers -Libya andio its rosier ol credn recipients and provided further credits ofvalue io Nigeria The credits io Libya will gouclear power pljni. two ihernial power planis. and iltlroad

j This deal mayeatn severalubtiantially increasing Tripoli's dependence on ih* USSR foe economic development Moscow had lucd io keep Libyan iransaciionsash basis, bul wis forced by Tripoli'sevenues lo provide funding to obtain ihe contract. Gabon re eeived lis fiiSl Soviet Ciedils foi minerals and mm It developmenl The USSR reportedly offeredear lepaymeni termsan effort lo sell equipmeni and io sccuie long lerm access lo Ihc manganese and othei sirategic metal* io be produced by theed

l ii-

l iSv ihcm UNCI AO

SSt feuuid atai

KH lniin

tredrts taDaO. ana* iM ky> ofcelfdteiMiitlyMia-

m. US I

uEconomic Aid Extended to Non-Communist LDCs

USSR: Major Recipients of Budget

Covnuy

asi

consumer roods, atricutturit stir-plies, other commodities.

food, medicines, mrh.tir.almaieiiil)

food, roinrwuion materials

to finance Vocal projtci onus

rood, commodities in finaacc local costs.

consumer [oodi. torn mod "ui io finance local costs

oveiall Soviet program. dominated by the liberal Indian credits, gives the appearance ihai Moscow has reiuined to the easier terms offered in. Wedoubi. however, thathas substantially changed ils profil-oticntedWe suspect lhc new credits io Libya and Nigeria will substantially reduce ihe overall conees-sionality ofrogram when their valueknown

Moscow has stressed ihe advantages of itsparticularly ihe buyback feature in which lhc USSR lakes products inhas promised io increase aid once Gorbachev's domestic reformsand Soviet productive capacily. Nonetheless, we have found no evidence lhai LDC aid has received high-level altention since Gorbachev took power,6 aid initiatives were in irain before his arrival The laige package fot India rcflccis preferential treatment traditionally shown Newfirst major projectolicy change and is intended to expand trade and maintain Moscow's positionajor player in Indian

The new aid agreements do not reflect any major rcihmking on tlie question of hard currency outlays for aid programs In the Indian agreement, for

eiample. all transactions arc in rupees Similarly. Sciet commodity support to Marxist stales since theias not involved foreign en lunge cxpencaiuie ihai did noi6 The mi-or commodity pledged last year wasetude ml. which does not tax Soviet resources because small amounts are involved, and iheworld oal market has reduced Soviet oil sales andw*phn available for clients On the other hand, lood aid. which Moscow generally mullabroad, remained al its usual low6nd grams of all lypcs fell5 million- -ihetr lowest levell

A Steady Payback

ic ol modest outlays, economic aid io non-Commututt LDCs has effectively scived Soviet politi cjl and economic goals Ii ts not surprising, thereforethe run three sears Moscow has pushed rconomrt progiams into new areas strategic IOsecurity interests for example, the USSR has used its fisheries program ioresence in Ihen through contracts with Kiribati and Vanuatu, allhough the agrceuieni with Kiribati was allowed io lapse because of payment disputes The

Million VS % CostKeynote

Relief Assistance lo Nrxi-Communist LDCs

The Kremlin's economic aid program for non-Communisi LDCs has been relatively small and Inexpensive over ihe yean; tn most years,are more lhan mel by raw materials obtained from Soviet-built projects and hard currencyfor technical services

Such aid has always accounted for the smallest fraction of flows to LDCs under Soviet penetration programs because:

The USSR's massive support for Communist LDCs.in which Soviet prestige ts closely lied to economic performance, has absorbed mastaid resources.

Soviei policy has favored military equipmeni sales as ihe most direct route to influence in non-Communis! LDCs: the USSR has provided SI0 worth of mililary eouipment for eveiy dollar spent on economic aid in ihe past decade

ndhow how economic aid flows to non-Communist LDCs compare with Other transfers IO developing nations

wiih Vanuatu allows Moscow its firsi access io shore facilities in Ihe area: ai ptesenl several oiher Pacific stales arc studying Soviei economic offers. In ihe Philippines, ihe USSR has offered several hundred million dollars of prcjeci assistance to the Aquino government, hoping ioong-soughl economic presence in the country. Manila, however, lemains wary of Moscow's offers

Our analysis indicates that the USSR continues to meel other important objectives at low cost ihrough ils aid program by:

Placing economic advisers in mote thanest developed nations, some in positions of influence, panicularly in Marxist stales

Using development loans to open new equipment markets and io support SI billion of annualsales io LDCs.

Guaranteeing, access to S? billion annually ofraw materials from more thanountries.

- Earning0 million in hardeai from Initial sales of complete plants and equipmeni to Third World customers and from technicaland follow-on spares to all partners.

l-rrWri

Nwih Korea.wl. oa*

USSR: Eeonomie and Mililary Flows to the Third*

d so tfon Commortiri LOCi

economic aid io Comraunm LDCs

foio'- re; eituoa us s

at least one-third of Its annual fish catch wiih fish from LDC coastal waters under the USSR's fisheries aid program.

Providing direct, low risk support to new Mataist 'cgimes. such as those in Ethiopia and Nicaragua, where Moscow and iu allies have replaced Wesiern countries as ihe major foreign influence

Machinery and equipmeni transferred undoprograms account for about half of Moscow's civilian equipment exports, while goods fiom Soviet* built enteipiiies also account for half of Moscow's impo'ls from all LDCs. according to Soviet data.

opportunities to bid on profitableeluctance to throw more resources into supporting Moscow's eft or is io cocsolrdj'e regimes in Marsisi states Exceptrief surgeast European pledges duringave usually hovered atS?O0ear (see table 8)

East European assistance is geared even more lhan Moscow's toward increasing export earnings and raw materials imports, rather lhan humanitarian orobyeciives. Aboulillion of the new credits6 promoted traditional East European business interests in Arab countries, where Warsaw Pacioften are able to guaranice oil supplies and other

olding Pattern

New economic aid commitments from Eastern Europe remained well below the SI billion markn our view reflecting the continuing lack of new

MM'O* US (

tJLSltfn Europe Economic Aid Extended lo Non-Communist LDCs

tiK'i Sum

LOO

Dm lie louadtei io ihtecsnc ol rounding. (Ompancfui iiui ltd add io ihc icmh iho-n

resources is repayment. Funhcr, more than half of0 million of aid lo Marxist slates weni to Angola, -here East Europeans believe ihey canrecover iheir investment in oil and other resources.0 million of ibc new credits financed East European equipment capons, some ai ncai-maiket raics. Lessillion wasas grant

Because Easi European aid to non-Communist states is inlended primaiily to benefn the economy of lhc donor, we have seen growing resistance to Soviet pressure io aidslates such as Afghanistan. Ethiopia, and Moiambique. East European countries inave provided less thaneiceni ol their aid to Marxist stales. They have been mosi responsive to Nicaiagua. which hasillion of Easi Euiopean commiiments. led by pledges from Easi Germany and Bulgaria, th'tractable or Moscow's Eait European client'

Cicchoslo-akia was the largest Easi European donor to LDCsxtending credits to stimulate equipment sales io Algeria. Egypt, and Pakistan, and lo Ethiopia io renovate and expand Ocehoslovak-built plants Easi Germany was second with credii* io Angola and Nigeria ioange of Easi. German machinery and equipmeni export

ontinuing Downtrend

Soviei and East European aid disbursementsto fall from) peak, despite heavy deliveries of food, consumer goods, and oil to Marxist states. Grants fellillionecline in commodity shipments to Afghanistan (secoviet deliveries against projectalso fell to their lowest point for the five years ending inISconslruction wound down on steel plants and other heavyin Algeria. Iran. Iraq. Nigeria, and Pakistan. Even though project aid levels have been lowerMoscow has improved its implementation record;illion of tbc project deliveries6 moved under agreements concluded0 Thisubstantial reduction of construction jags compared wiih earlier periods in the program

Even with the recent drop in disbursements, nearly half ofillion of aid delivered under Warsaw Paci programs6 has been disbursed in. This reflects the increased volume of commod-uy grants to Marxist slates, which have beenimmediately. Larger price tags on Sovietprojects also have pushed disbursement levels upward; costs for some equipment and material may have doubled since

Tbe Technicalramatic Reduction

The number of Warsaw Pact and Cuban economic technicians in non-Communist LDCs declined more lhanercent6 to iu lowest level inecade, affected by declining oil revenues and conflict in Middle Eastern countries-the major customers for Communist technical services (seehe largest cuts were in. Iranraqnd) In addition, moreuban technicians lefi Nicaragua atjhe end of iheir tours of duty and were not replaced1

Since ihe, the USSR and iis Easi Euiopean allies have earned hard currency from ihe sale of icehmcal services io Nonh African and Middle

MHUtM US 1

USSR and Eastern Europe: Kcotiomic Aid Deliverieson-Communisi LDCs

wi-ioni

Warsaw Pact and Cuba: Economic Technicians in Non-Communist LDCs

oil produccis. The Communist presence tn lhc aiea grew steadily lor moteecade, with Ihc USSR and Eastern Europe winning constructionvalued in ciccssillion in iheears endingany of ihese contractsull range of technical services from laborers lo skilled lechnicians and managers. We estimate that by. Warsaw Pact countries were earning moie0ear in hard currency for services provided toC oil producers.5 ihe number of Soviet and Easi Euiopean lechnicians in Middle Easlcrn OPEC countries peaked at morebouterceni of Warsaw Paci "clinicians in the non-Communisi Third World

Student Trainingook Behind ibe Numbers

The Kremlins belief ihai its education program pays big poliiical dividends is evidenced by coniinued investment in scholarships for LDCs. despite ihe economic difficulties conlronling some of Ihedonor countries. More0 students from non-Communisi countries began firsi-yearal Warsaw Pad universities and technical schools lasl year, bringing ihe total enrollment6 to more, and ihe numbci trained since the

. For someevelopingthe educational program is the only contact most of their citizens have wiih Communist couniiies

Soviet and East European training programs,to serve political goals, have several character-isiics that effectively further Communist influence in LDCs:

The USSR and its allies provide all-eipensefor almost all students accepted for training. As only aboutercent of LDC students in Western universities receive officially financed scholarships, the Communist countries arc able to attract large numbers of Third World students in spile of universal complaints about poor quality or narrow training, discrimination, and poliiical indoctrination.

Communis! countries insist ihai graduates relurn home after training is compteied io serve as symbols of Communist largess and possibly to promote Soviet poliiical and economic interests. This policy also allows Moscow to disclaim any responsibility

Seatfet"'

Ihe Thiid World brain drain. In contrail. Western countries do notonsilient return policy, and many graduates of Western schools work and eventually reside permanently in the Wesi. Algeria, foe example, reports (bar one-third of the students it sends to Western universities do not return borne.

Communist countries take students from all social classes, including (hose whose cbanccs for training are limited by poor marks or poverty. Mosi who receive Communist scholarships arc grateful for tbc opportunity, even if they do not return hometo Marxism. Western countries, with ligor-ous admission criteria for foreign students, usually select only ihe best LDC students, most of whom come from wealthy families

Konk Africa

Latin

Academic Students from LDCs in Warsaw Pact Couniiies. by6

many graduates of Communist universities find it hard lo advance beyond entry-level positions or arc unable to find employment at all. their sheer numbers and the shortage of skills in the Third World are overcoming longstanding biases against Communist diplomas in many LDC C

Moscow increases ihe impact oi naming programs by distributing scholarships amonglhal do no)arge studeni population in the West. This meansarger proportion of foreign-trained students entering the work force in these countries will have Communist degrees. For eiample

In more lhanfrican countries, the USSR provides more scholarships than the United Slates

Moscow is the major public scholarshipuch strategic countries as Panama and Nicaragua

Half of Syria's students abroad aie in lhc USSR and Eastern Europe; withinears lhc majomy of educators in Syria will be Soviet' irainei"

Since ihe piogiam began in theethairaduates from Warsaw Pact schools have returnedountries. We believe thai this exposure of civil servants, educators, and journalists to Communist ideas has augmemed Soviet and Easi European influence in the developing world Al present, we have identified Communist-Irained personnel in policy-level jobs in ai leastDCsresents information on Ihc impact of Ihfi Warsaw Pad scholarship program in LDCs

Outlook: Mine Demands. Fewer Returns

We belioe that Moscow's cur rem. more cipcnsive economic ard program isollision course wuh domestic demands for icsources and eipeclanons of ihc hefty return on aid investments that Moscow has eiperienccd in the pan As expenses mount, lhc program's steady political and economic returnsthreatened,ew challenge for Soviei aid oJIkiah

Man.si Slates, which arc supported on ideological grounds, cost lhc USSR more than SSO0 million annually in oil.maicnals. and other eommnd niesiSat could be sold elsewhere These Bowsei loss io the Soviet economy thai will never be recovered (see figurec believe thai, because of ihe intense deterioration in Maraisl LDC economies. Maraitt aid demands coutd double by ihe end of the decade

Longtime recipient* of Soviei aid in Africa, such as Guinea and Mali (hat adopted the Scn-iei economic model in, arc refurbishing iheii economic

Vm

ood,

dT

Returns

Cipktn*

lie* Asm-

Siudenu

Socifl*

Oualitt U

fii finddull ard klraiccical.

USSRcc of fcffCiEP tthctanJtiprj,

SocialairuttEft bnpc<kijiwhof So-yjci jitftuencc

E^^rrakocy probtaiucceptance of Khdarth.tpt

SijMf UZttntituct lei tiers arc SoM'itriintd

DikTKu.ty ftimtgnhfttntictrv

Rc'1-imMiKcr.li.led inr.,cij

tf% of sludcr.l* aVoid are inact.

ComcTO* iccrpu scholarship bceaue students return

SopSei-trained pcttctiwl grnpkytd in ul] wrtocv Rctur*cc> uodef cScae police

Rem

NfoU senior posiiiort, held by WtMeiB trainees.

Infl

robktn* flying jota

returnee*Ebt

a decree

Suspicious

Social mten has aversion io Co^niunim-

Scholarships, acapicd foreawni

Hcturnttt hitr diffiouliy- finding job*.

Sub*Saa*rt* Africa (raatiumi)

union

Tome and Precipe

Icjne

Atb

Afl*rk* bW dM

/

Rka

Republic

of Comments

Civil Media Education

Number USS

Retamccs O'l*

orarl lion

Ac-

men

emptojed in all seders of economy

Soviei-tnined manatee* in malt tee heal miiustriei

Cotwreiueilst cdvaiion detrimental to tdvinoimcni.

Stiofijiiol CoTrirris-nisI education

USSR major foreign scholarship source. Notbccauie no facilities aischolarship holders do net for Party.

Technical developmentsWtwcn aCadensrc fouratlailon.

Returneesad rtOdiscceaibie effect.

R^turrrees closely fcrwirrhed.

First resvtnCT avidly anti<:ornrra.niu

Soviet scholarships not popular.

Rrlurnecs cscrtint trowing influence inscholarships taken each year.

Engineers, doctors, leathers retarn to small to-no.

Knur-*eic-Xralv ,et >cbs

G roving Mariist influence in (dotation.

Nil Irtal

Lack of aturnativr* mate Sovirl sefctlarships attractive.

Only

of RfWinan

j-cimcat

Abe* toUj

a.- StoOCMS Soviet

Maa. km

hotK* rdbna hjoe.

m Ui^.wi; /unity nvmben Cramu.it.

Some if hidmhlp SovicMMiMd.

Rai

Laiit number of leachan Sovjat-taanaad.

L'SSHoreiin eounir, oflcin* aeholanaapa.

C.cefc r

havefkowt.

01inBwnoe ia civil

Miiy Mudein fiom Aimeaiian

H.lf of MM abroadu- Pact (

i mux .aekiio lenxCwt

ope^wailica al Sorel-bmli project*.

S-urtfunified fimplojrd mbmli pfitiu.

lies io Ihe West, and Moscow can no longer coun! oo theii support for its international policies. Ghana and Guinea, for example, voted against the USSKN resolution condemning the presence of foreign troops in Afghanistan, while Congo and Mali abstained from the vote.

to high- and middle-income countries have declinedigh ofillion3hese credits are repayable in hard currency or valuable raw materials, and until recently offset Soviet outlays to poor LDCs. None of theincluded in our estimates6 call for these repayments, reducing Moscow's futurefrom the program

if Moscow wants to use the economic program as it has in the past to attain political and economic objectives, its options for restructuring the aidare few:

Wc believe that Moscow may already have reached its upper limit on budgetary support, which largely will affect growth in the aid program in Marxist states. This type of support has grown to nearlyercent of total aid in, compared with lessercent ineriod. Oil prices already are on the rise again, boosting the cost of Soviet crude deliveries to Marxist stales andpressures to conserve resources forrcviialigation at home. While Moscow appears politically committed to supporting Marxist slates at current levels, we do noi believe Kremlin planners will countenance an increased aid drain without extensive high-level debate. Before they commit further aid. they certainly will encourage clients io use resources on hand more efficiently. Moscow already has pul Nicaragua on nolicc that il willore active role in Managua's economic planning because it has poorly managed Soviet-provided oil and other resources.

Moscow will want to expand its aid program Tor traditional recipients in ihe Middle East and North Africa, largely for economic reasons. Thesegenerally receive export-type financing that promotes Soviet industrial exports, and eventual return Rows from ihem sustain economic activity in

Table

USSR: Major Economic Offer* Outstanding to6

Couatry

(ill

r ptanii, rail and trolley line. nod. crnilai-aaof Annate iieelcomplea

iM. fiiiititet

plant, ras pipeline

and irritation project aad ibtimal po-er otani. Jorf Uifar

complci

acid plant

po*ir plants

pipeline

proacci. Ban. fii.e.

irntiiion peo*ci

other LDCs. In Iran, Iraq, and Libya, the USSR and its allies will use lhc influence stemming from the military-supply relationship to bid successfully on major projects. Moscow is awaiting decisionsumber of highly competitive project proposals to LDCs lhal will be more than enough to sustain credit levels through the end of ihe decade if awarded to Soviet contractors (see

In resource-poor non-Marxist stales, particularly those tike Ghana. Guinea. Madagascar and Mali that have hosted unsuccessful Soviet economicin the past, ihe USSR will be reluctant to take on large commitments where lhc political and economic payback is dubious We expect Moscow io provide only enough aid to protect iis economic interests and presence, such as fishing projects in Guinea and gold mining in Mali

esult, we expect Moscow to continue on the path of lecent years, wiih heightened cost-consciousness about the program in Marxist stales

Moscow also will push energetically lo use recent changes in ils economic structure lo increase ties to LDCs. For example, revisions in Soviet laws to permit the USSR to participate in foreign joint ventures will give Moscow new economic options in the Third World at virtually no cost, because Moscow will receive returns from its equity shares. For example. Moscow and Kuwait have tentatively agreed tohundred million dollars worth of Kuwaiti financing for Soviet-built projects in third countries. Moscow hopes that this first major twnomic agreementonservative Gulf state will enable it to expand its presence in the area, as well as hard currencyby constructing development projects funded by Kuwait and gain continuing access to Kuwaitifor Soviet development projects at home

Although the Communist countries do not want to abandon their effective student training program, ihis effort may undergo dramatic revision in ihe next few years. The growing AIDS epidemic in Africa, with its potential for rapid spread to other LDC areas, mayeduction in Communist scholarshipThe USSR and Eastern Europe alicady have begun AIDS testing of students from high-risk areas in the Bloc, and we believe that Moscow may restrict the flow of students from non-Communist countries as the AIDS epidemic intensifies

Appendix Regional Overview

Aid agreements haverimary loo) used by Warsaw Pact countries to establish and maintain economic relationships with the non-Communistworld, but Communist countries have at theirumber of other techniques toaid pacts and maximize theirhow the distribution of these other agreements among LDCs. including;

Join! eeonomie commission agreements. In the, Ihe USSR and Eastern Europe began form-ing joint economic commissions with key LDC partners to administer Soviei aid programs and plan economic and trade relations,inner base for long-term planning by both Communist countries and LDCs. For Communist countries these commissions allow the orderly development of equipment export plans and resource supplies. In the pastears.ountries have formed jointwith the USSR and/or one or more East European countries.

Joint ventures. Someountnes have concluded joint ventures with the USSR and Eastern Europe. These agreements call for joint ownership of the business or production unit formed, generallyercent for the LDC andercent by the Commu nisi partner. Moscow usually has formed jointonly for fishing: we expect new Soviet investment laws to permit Moscow to extend its equily participation into other areas. East European countries, with more flexible investment laws, also have formed ventures in other areas such asminerals, and metals produclion and sales agencies.

Commercial development contracts. For the USSR and Eastern Europe, commercial developmentarc the ideal vehicle to penetrate LDCs from both economic and political standpoints. Under these contracts, which generally involve largein wealthy Ia correseondingly large technical presence- contractors are paidfor work performed There are no deferred payment terms for equipment and services More than half of the Soviet and Fast Europeanabroad come under Ihe terms of commercial development contracts won in competition with Wesiern bidders Libya, for example, hat paid Warsaw Pad countries billions of dollars forprojects over the pailears. Generally, however. Communist countries must olTer credits to win contracts in LDCs, onlyDCs have signed commercial devclijpment conliacts with Warsaw Pad countries

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