SOVIET GRANT MILITARY AID: A MAJOR TOOL FOR GAINING INFLUENCE IN THE THIRD WORL

Created: 8/1/1987

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KEMOPAwJoH FOB: See Distribution SUBJECT:

Soviot Grant Militaryajor Tool for Gaining Influence In The Third World

'-The attached mamorandum respondsocrueat forl.lon on the ecop- of Soviet grant military aid to tha Third World. Th. USSR7 billion dollar, in arwa toh year on art outright grant baaia-oveeeccant of ita totalalaourabor of other financial ecocesslona to -any of its .reus clients.illingrvasa to use grant aid widely highlights its use of

n influence in tha Third World andt an advantage In developing arw* relationships with LDCa.

2. Thie paper was prepared by

Office of Global leauaa

Your eomenta and luggestiotts inaddraaaad

Officebal Issuer

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SOVIET Cft*HT HILITJIgJOH TOOL FOR GAIHIBC lfctFltgMCEHE THIRD MOULD

Suafttry

Ue estluate thatercent of6 billion In arm that Moscow sends to LOGS each year art provided on en outright grant basis. In addition to these outrightaaount to7 billionariety of other financial concessions on area sale* to nany countries, Including terns mien anount to de facto grants. Moscow's grants are concentrated anong its Coanunlat and Karilst clients, but the USSR provides at leastrant aid to aost of Its area clients, underscoring the Soviets' use of allltary aidever to gain political Influence In the Third World. He believe the value of Hoscow'a outright grant allltary aid to tho Third hnrld will reaaln high and aay rise because several najor recipients of Soviet allltary aid need large Mountso fight wars or Insurgencies and have little ability to pay.

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available as of7 was used In Its preparation. Cements and euerles are welcone and any be addressed to

Office of Clonal Issuer

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rant miliaryajor Tool for Calnlna mriwnce Ir, Th. Third World

provide,uats1 Ur, .oulpnent and aaterlel to Thirdntrle. or, on ootrlcni grant bull'. Our analysis lr.dlc.ei that during

W percent ofillion In iru deliveries

UUft^nn,rant Mli. This eou.UaT billion In gr.nl .id

- a",lu,lil*naIonst nllltsrr .Id to'LUC,i Mlllonyear." it inn to of the value of Hoacou'a grant aid In this paper la throe tines previous aatlaatcs and roflfcteecerit upwardIn tho aaLlaaU of the value of Soviet ami transforaamful re. levroad range of reliable reporting on soviethe annei dauils the Hthod by -Web ho have oitlaatad the vilue of grant.

Recipient* of Crvant Soviet Military U4

Theoffers varying aaounts of grant aid to Its artvi ellenla,aost receiving at least scat grants. He are not aurt hoar Ho wo. de, ter.lr.es ho it auch grant aid to provide each country, but in general, countries uhlch are ideologically tied to hoscow or poor receive Bore grant aid, while other reclplenta racnlve Uttlo or no arearant basis:

o Severaland aaralst-Unlnlit UO--CaaCodla. Cuba, Laos. Mongolia. Tie loan, and probeblv Nicaragua and Southalaost all thalr .mtar, goods rrea or charge- C

JCronada also rocalvM all of Its Soviet araa on a in the Uat five years wea to that theao5ear in grant alllUry aid. Intho OSSB rxovidaagrant aid to theseof their strong Ideological tloa to Hoicov deapltato pay >uoh for ami. Vc Mllovc tnit theseare obligated to pay for atsefor Is paying in tlacwr for soae

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In this paper the tnrua 'grant aid" and "grants" refer only to outright grants.

rtgures Include fKS credits to Israel iM Egypt ea uhtcn payaent Isard njj and har> aorgnr funds, the traditional IB grant aid progran.

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o Other Harilat-Lcnlnlst LDCs also receive large Mounts of theira grant basis, reflecting Moscow's readiness to supporttheir Inability to pay for all the eras they need. C fghanistan and

c run or aore oi their areaa grante believe that Angola aad Hozaablquc receive slallar anount* of greet aid, Ve estimate that the value of Moscow'* grant allltary eld to these Harilat clients sinceaa ranged froa5ear.

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African recipients of iv.iec eras, sucn as congo and Burundi, receive JO-Bc. percent or their erasrant basis. In, the total value of allltary aid to ainor African recipients has been close to llOOear.

oew tajor customers In the Middle East probably receiveaid froe the Soviet Union.

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currently aboutear--of its Soviet arnsSince thend that Syriaargefree aras to rebuild Us forcesollowing ItsIsrael. Algeria allll receives token numbers Of TreeMoscow despite converting Its acquisitions ualnly to ain,

oIndia and Peru receive no outright

grant aid. Ve believe thatsone other Soviet aras clients such as Libya, Kuwait, and posslblv Worth gores and Jordan also do not receive any grants

Other Soviet financial Concessions

In addition to7ear in outright grant aid. the USSRuabcr of Other financial concessions to aany of Us aras clients:

Moscow provides low Interest, long-tara credits to aany countries to finance arts purchases. Terns vary, but interest rate* can be as , lowercent, and repayacnt periods canup toears with grace periods up to four years. Ve estimate that, on average, credits are forears, atpercent Interest,ne or two year grace perlod--well below aarKct rates.

uUSSB's second leading aras costoacr over the last fiveallowed lo pay In soft currency.

Oeihl pays for arns In rupees llu-ougn

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Bilateral clearing, account In which IrvJo-Sovltt trade Is balanced over tlee. This setse facto barter arrang.aeot -nich help. IrJla aarket lov quality aam.factwr*a. ddition, tha rupee-riAl-eichange raU haa been favorable to Ve- Delhi In thelAlcf) further cut* the actual coat or Soviet area.

Several countries Bake at least soaeoods.the hard currency coal of payacnta. afghanlatan,pays In part In natural gas. Zaable haa providedalso peya at least part or

iTa aras debt vitn |coda

Moscow often reschedules or fergl.es Its sraa eltenU' anpaldthan acceptractice that tarns soaed* facto(or

o SCO. haa postponed payaonts on tlhloptas-clebt The aobt la now approtlaatelyblllton-far aore than Iddlt

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hoacov'j widespread use or |ranl aid bespeaks Its reliance on aras transfersew to gain political Influence In the Third Vorld. The USSR's Infusion* of free area help prop up its Hara-lst-Lenlnlat clients which are beset by Insurgencies. Rapid reaupply of free aras to Syria Inrobably helped restore Moscow's laageeliable and useful ally after the defeat of the Syrian air force by Israel. In our view, the high percentage of Soviet aras transfers laderant basis to Iraq Into theeflects Moscow's need to patch up relations uith Baghdad following ItsT6ra* of Iraq.

Soviet willingness toraal aid rather than seek aa such payacntgives Moscow an advantage In developing and ealntalntngwith poor UCs. artial grant cut* the cost to theSoviet eras to levels well below the costs of buying other Grant aid can give Moscow an added advantage In -Inningeven when other potential suppliers also offer concessions suchloans and offsets. Cranta also help Moscow keep Us eras clientstheir ara-even when tney are dissatisfied with Sovietwould Ilka to diversify Us

aros sources, although Luanda has bought such equlpaent at trucks--which are sold byrganisations that do not provideroa gras.fi.

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Franco, Spain, and Romania, Angola rella. ilwt totally on Moscow forgoods, (tonco-'a subsidy on thasa goods, Inthe

financial penalty of buying these IUna alMwhar* prohibitive.

We btlleva Uvat the value of grant Sovlal miliary aid to the Third World will reaaln at Unit at cur reelha neat several rear, and aa*irscu-eaaa. Our analysis C

-Jlnojtatea ttut reeipianta are receiving the nanaof grantearlier deala. Ha believe it unlikely that1 change Wean tarn, given Its ellenla' lack of nonar. Most aaJor recipient of Soviet grant allltary aid also are fighting uars or Insurgencies and will need larg. aaounta or aroa to pursue their war effort*. We believe that Moscow will largely supply these needs, in sou. eaau, the dtaand for Soviet area any rise. Iraq's financial probleoa, for eiaaplo, nay force It to cut back on araa purchases from non-Soviet suppliers and Increase purchases fron Moscow. Thta would also Increase tha total aaount of grant aid unless the Soviet, draaatleally tightened tha Urn ofove us believe Is unlikely.

Original document.

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