COMMUNIST AID TO LESS DEVELOPED COUNTRIES OF THE FREE WORLD, 1977 (ER 78-10478U

Created: 11/1/1978

OCR scan of the original document, errors are possible

National Caller

Communist Aid

To Less Developed Countries

Of the Free7

cia specialelease in0

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CommunisI Aid lo Less Developed Countries of Ihc Free7

ltcv Saiumal Forrtgn Aoeummf Cmlir

Key Judgments

The USSR reinforced its Third World connections7 with military sales agreements of near-record size and economic pacts that seemed to ensure long-term Soviet involvement in several key less developed countries. Moscow once again focused on military aid as its moat effective means of building up influence in Ihe Third World. At the same time, the USSR expanded economic and technical cooperation with LDCs in order to consolidate political gains and to assure markets and raw material supplies for various branches of Soviet industry.

Despite Moscow's apparent prexxcupation with sub-Saharaawhere its Cuban surrogate* played an increasingly importantof tbeillion military commitment7 went to support radical Arab regimes. Moscow's traditional arms clients.

Moscow's most decisive supply action was in the Horn of Africa. Following political decisions madehe USSR shifted its alliance from Somalia to Ethiopia in an arms buildup unprecedented in size,or character in the sub-Sahara. Meanwhile, the USSR gave more active support to African insurgent groups through new and heavier assistance.0 Cuban military personnel in black Africa at yearend (almost twice the number atere further testimony of Moscow's heightened interest in the area.

The3 billion in Soviet military deliveries7arger proportion of advanced weapons systems and naval craft. Egypt's ongoing peace initiatives toward Israel provided Moscow furtherto cement relations with Algeria, Libya, andof the "Steadfastness Front" opposing accommodation with Israel.

he USSR and Easi European countries signedconomic framework agreements with LDCs, the majority to be implemented overoears. The amount and kind of assistance for specific projects and the

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terms of repayment are to be negotiated separately. They may include conditions ranging from straight commercial transactions to liberal long-term provision of aid. The agreements shift the burden for formulating viable new projects lo Ihe developing country.

The USSR hopes by these economic aid agreements to quiet growing Third World discontent with the level and character of Soviet assistance. Moscow also expects return benefits, mainly in the form of (a) establishment of markets for Soviet goods and (b) securing new sources of foodstuffs and industrial raw materials such as bauxite, iron ore, and phosphates. East European countries are particularly interested in concluding agreements with the LDCs that will provide future oil supplies, since their increased needs almost certainly will not be met by the USSR.

ommunist economic aid commitments fell to theirJowest point inillion in new credits. The most precipitous drop was in the Soviet program, as Moscow pledged less0 million of aid, mostly lo India. The decline in the value of new aid extensions, however, should nol be interpretedwitch in policy since aid deliveriesercent higher

CONTENTS

Key Judgments

The Military Program7

A Near-Record

Little Change in Client Pattern

Arab States: Economic as well as Political Payoff to

African Clients: Political Considerations Paramount

Other LDC

Deliveriesecord Pace

Mililary Technical

LDC Trainees in Communist

The Economic Aid Program

Soviet Aid: Few New

Commercial Accords

Other Communisi

Technicians

Technical

Academici

Appendix A

Country

Tables

Communist Military Relations with

Communist Military Technicians in LDCs.

Military Personnel from LDCs Trained in Communist

Countries,

Communist Economic Credits and Grants Extended to

Communist Ecxynomic Aid to LDCs

Communisi Economic Technicians in LDCs. by Country,

Academic Students From Selected LDCs Being Trained in

Communisi Countries as of December

Communist Aid to Less Developed Countries of the Free7

Mililary Aid Programoar-Rocord Yoor

Large ulcs to traditional clients and massive support to Ethiopia pushed Communist arms sales to LDCs2 billion7 and arms deliveries6 billion (seenlyhen Moscow was restocking Middle East inventories, weresales higher. Transactions7 raised total Communist sales lo LDCs since theoillion.s in previous years, the USSR accounted for the lion's share of the Communistercent of sales andercent ofnd Moscow continued as the second-ranking LDC arms supplier, after the United States. East European countries and the People's Republic of China contributed0 million in new agreements.

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A few large arms sales dominated the Soviet military aid picture againith five

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Algeria. Ethiopia. India, andfor almostercent of the sales. The Soviet commitment to furnish S2 billion of arms to Algeria. Libya, and Syria bolstered the hard-line stance of these countries against Egyptian peace initiatives. The USSR's sales of modern weaponry to these radical Arab clients have been motivated by politicalthe substantial hard currency earnings from the salesighly attractive secondary' consideration.7 the USSR broke the Western arms supply monopoly in thePersian Gulf statesillion cash sale of missiles and rockets to Kuwait.

Arab Stci-i Economic a% well ot Political Payoff lo tho USSJt

The Soviets made few known financialto large clients last year, eilhcr in pricing arrangements or repayment terms. In all. the Soviets will gain5 billion in hard currency7 arms sales. These earnings comearticularly opportunethe large hard currency trade deficits of

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and reduce pressures on the USSR lo cut back imports of badly needed equipment, grain, and semimanufactures from the West.

The Soviet-Syrian relationship, which6 during the Lebanese crisis, was rekindled last year with new militaryIraq followed its SI6 order with purchases of long-range jet) never before exported by the USSR.

Algeria plans to modernize its inventorieswith the squadron ofighters that Moscow is providing under7 agreement. It will use the additional tanks and combat vehicles to reorganize its ground forces into mobile units better suited to desert warfare.

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The Soviet venture into Ethiopia was frankly political. Rising international criticism did not deter Moscow's continuing sub-Saharanfor which military agreements7 soared0 million, triple5 level (the year of the Angolanhe record-setting transactions represent the largost Soviet commitment ever made to black Africa andajor shift in Soviet policy in the Horn of Africa. Soviet agreements for equippingmodern weapons was accompanied by (a) Moscow's refusal to ship offensive weapons to Somalia, (b) Mogadiscio's abrogation of4 Somali-Soviet friendship treaty, (c) Somali withdrawal of Soviet rights to naval and air facilities in Somalia, and (d) tbe expulsionoviet advisers from Somalia.

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In South Asia. India continued its longon the Soviet Union with arms orders, which include licensed production ofis aircraft in India, and continued Moscow'sfor Indian defense production begun in. India's cumulative military purchases from the USSR stood at S3 billion at

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The USSR shipped LDCs an3 billion worth of military equipment last year, almost seven times Moscow's average annual deliveries to LDCs in thend almost twice theeliveries. Athe Soviets hadotalillion of weapons to the LDCs, aboutercent of its total commitment.

Three ArabLibya, andamong the lop five recipientslong with India and Peru. Collectively, the five accounted for aboutercent of Soviet deliveries. Ethiopia and Algeria were also major recipients. Moscow also made its first deliveries of important weaponry to Peruighter/bombers to-Peru andis to Ethiopia.

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0 Communist military personnel were in LDCs7 to assemble and maintain equipment and to instruct local units in combat techniques and the maintenance of new weapons. In the case of Angola and Ethiopia, Cubans were engaged in actual combat. The preponderance of Cuban personnel and their overwhelming concentration in sub-Saharanis shown in table 2.

percent rise in tbe number of military personnel in LDCsomparedas aUnost entirely attributableearof tbe Cuban contingent in Angola, where in addition to the usual advisory services, many were directly involved in combat support. Others worked in Angola before being transferredForhousand Cubans were moved to Ethiopia before the end of the year for action against Somali forces in the Ogadcn. Cubans also trained African insurgents foragainst established while governments.

Soviet and East European personnel in LDCs increased by more thanercentomparedost of the gain occurred

in sub-Saharan Africa. The large*!in Ethiopia and Mozambique Thein Somalia early in the year hadby yearend. Except inossible reduction in Communistsupport for arms sales compared withThe number of Communist militaryassigned clients outside of black Africahad changed little from

when annual Communist arms deliveries totaled less than one-third7 level To some exient the difference7 reflects the reduced needs of LDCs because ofoears of Communist advisory services already providedadre0 LDC nationals that had been trained in Soviet and East European institutions.

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Ashe largest concentration of Soviet personnel was in Syria. Iraq, and Libya which accounted for about one-half of ihe entireThese three Arab slates also received nearly one-half ofast Europeanontingents of moreere in Ethiopia and Angola,an teams were maintained in Afghanistan and South Yemen despiie relatively small deliveries to those countries. The number of Chinese militaryin LDCs declined for the secondyear.

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5 percent fewer LDC personnel went to Soviet and East European mililary institutions for training thanbe drop was_partially

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Mililary Peewnnol from IDC* Ira-ned lo Commwiifl

offsei by on-site training conducted by Soviet and Cuban technicians in LDCs. Ofhird World personnel that went for advanced training lasi year, more than one-half came from Ethiopia. Iraq. Tanzania, and Syria; and, as in most recent years, the largest number were trained on air defense systems, or as pilots, tank operators, and maintenance technicians (secther countries in sub-Saharan Africa accounted for an additionalerceni of the trainees.

Despite the fact that LDC training in the USSR is related to new orders or militarywe have found less correlation than before between Ihe size of annual agreements andof ihe numbers of trainees sent to the USSR. About one-half0 LDCtrained in Communist countries5 have gone for instruction in the pasteriod during whichercent of toul equipment orders were placed. The drop inof trainees per dollar spent on equipment largely reflects the higher cost per unit of the more complex weapons systems and also the increasing emphasis on on-site training

Th. Economic Aid rVn-ram7

Cornmunist economic aid to Free World LDCs7 dropped to iis lowest level inecade, wiib5 million in credits(seehe newfell more thanercent6 and wereercent below the average for the five preceding years. The most precipitous drop was in the Soviet program, as Moscow pledged less0 million in aid. its smallest programast European countries halved their aid offerings6 million while Chinese aid rose slightly8 million.

The decline in new commitments should not be interpretedhift in Communist economic aid policy. Deliveries, which2 billionere in line with the record showings of

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nd large new aid offering!negotiated. Annual fluctuations inarc not necessarily indicatorsign of change in aidthe Soviets, broad swings from year toreflect aid opportunities as well asperiods before accords are signed.

In any7 data tend to understate tbe full extent of the continuing Soviet and East European aid effort because coverage is afTected by the following consideralions: (a) fewer new credit agreements arc being publicized, and <b) new framework agreements and generaland economic accords (widely used byCommunist countries) are open ended and do not usually specify the amount of ihe aid. For example, we noted0 million Soviet allocation for Colombian power development5 open-ended trade agreement, whichycar credits. In ourwe assign this and other new obligations of funds lo the originalthis case, the

A similar agreement6 resulted in Bolivian ordersmillion of machinery and equipment forindustry

We expect annual aid levels to continue lo fluctuate widely, as Communist countriesrely on framework agreements totheir financial relationships with LDCs.

These agreements, which outline the principles of cooperaiion. often do not specify credit limits, even though ihey may identify areas ofand in some cases the actual projects to be undertaken. The following tabulation lists Com-munist-LDC framework agrccmeni* signed7 for which definite credit values were not specified. The new agreements oftenixture of supplier-type credits and straight commercial arrangements as part of aid-related packages for implementing LDC development programs.

The framework agreements giveroad base for assisting LDC devclopmenl. while reaping the benefits of return flows of raw materials. We expect Moscow to use ihe flexible new accords to exploit opportunities foelong-term supply relationships forindustrial materials.

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We found few surprises among7 economic aid offerings. Only0 million development credit tofirst to India in more than aof unusual interest. The new assistance was granted in spite of the existence of0 million in unused credits from previous Soviet-Indian aid pacts. The aid to India accounted forerceni of total Soviet economic aid extensionsot only

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Ihc new agreement Moscow's largestunderillion Soviet aid program for India begun inut also the credits carry the most liberal terms (up toears' repaymenterccnl interest) the USSR has ever offered to Newarge part of the credit will be used to finance an aluminaevelopment area to which Moscow has been giving increasing amounts of aid.

The USSR also signed its first economic aid agreement with Jamaica7 for geologicalement plant, and training schools. Its only other important offeringillion credit to Tanzania for agriculture and education projects. This first Soviet credit to Tanzania6 and its only newaid to Africa7 did little to stem criticism of Moscow's neglect of economicin Africa.

Commercial Accords Eipondad

7 the Soviets redoubled efforts to sell machinery and equipment in Ihe commercial markets of traditional Middle EasternSeveral large contracts probably will be executedommercial basis:

second gas pipeline from Iran to the Soviet ' border.

Tbe Mosul Dam in Iraq toillion hectares of land andegawatts (MW) of power.

W Darbendtkhan power plant in Iraq.

The USSR also accelerated work onillion in Iraqi power and irrigation contracts signed6 and began studies to expand steel, coal, and iron ore production in Iran6

Other Communist Aid

Eastern5 million in7 reflected traditional concerns with building up markets for industrial andequipment in the Third World as wellew determination to ensure future oil supplies. East Germany was responsible for two-thirds of Eastern Europe's credits to LDCsith Egypt receiving the largestor ruralandfulillion credits were distributed among African and Latin American countries, mostly toequipment exports. East European countries also are pursuing opportunities for ensuring long-term raw materials supplies through their aid programs; new agreements with Ihe Third World have stressed the return flow of these strategic goods. East European countries actively bid on commercial development projects in Iran, Iraq, and Kuwaitoping to obtain long-term commitments for oil.

Chinese assistance, designed to furtherinternational political ties, has never had ihe commercial orientation that hasrincipal characteristic of other CommunistWhile the shipment of commodities and equipment under credit has stimulated Chinese exports to the Third World and nominalin the form of strategic commodities are flowing to China, Peking has never considered the program as having major commercialThe Chinese aid program has been de-emphasized in the period of economic andturbulence surrounding Chairman Mao's death. Extensions7 oflmost all for agricultural projects for which China iscontinuing domestic restraints.

In contrast with Ihe decline in extensions. Communist economic aidillionhe highest level ever excepthenorth of wheat shipments to India pushed aid to record heights. Almost all of the deliverieshe Third World7 were for development projects.

Technicians

The number of Communist technicians posted to LDCs climbed07 as work accelerated on major development projects (seeast Europeans were the fastest grow-

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ing contingent, asnd accounted for one-half of the growth in their numberost of the East Europeans continued to be concentrated in Arab countries, particularly North Africa, where they have large cashwith wealthy oil-producing states forservices. Libya, whose small unskilled work force has not been able to contribute effectively to its development efforts,0 of the East Europeans

The Cuban presence in developing countries rose toore than one-third higher thanhis increase reflects the influx of economic advisers into Angola and Mozambique for staff positions in economicand for jobs as doctors, teachers, and construction workers. In the initial) of Us technical services program. Havana apparently charged only local costs for most of its technicians (similar ton contrast. Cuba apparently had begun to demand hard currency salaryfor these personnel. While we do not know the terms of the agreements, charges for Cuban services are still far lower than those forCommunists.

The expanding Cuban presence in Africa, now entering its fourth year, has heightened tensions as Havana begins to attack domestic economic problems. In Angola and Mozambique, where the populace exists at bare subsistence levels, resentment against foreign personnel hasFor their part, many Cubans resent the rigor of their African assignments, and (heir morale reportedly is low. Nonetheless, Fidel Castro in7 announced plans lo increase technical support to Third World countries.

Soaring costs for Soviet technicians wereresponsible for the slowercent) of the Soviet technical contingent in Third World countriesf0 present in LDCs,ercent were employed at development projects in six clientIndia. Algeria. Iran. Iraq, and Syria. Charges fortechnical services shot up7 and typical salaries for Soviet doctors, teachers, and other administrative personnel employed by Third World countries range upnnually.

Most countries also must pay local housing and transportation expenses, which can double the cost of the services program. In poorer countries, the USSR still finances technical services for projects under long-term credit agreements, but wealthier states are paying cash.

Third World demand for China's low-cost services remained highspecially in sub-Saharan Africa Technical assistance continued as the most widely praised aspect of China's aid program. China sent anhinese to African development projects, bringing their total numberhinese personnel in sub-Saharan Africa accounted for nearlyercent of Peking's entire technical personnel on assignment in the Third World and for all of the increase in the Chinese presence in LDCshinese project technicians, financedaid agreements, receive pocket money plus local subsistence valued atonthost country. Peking probablyedical personnel present in LDCs7 free of charge.

Technical Training

On-site training of LDC personnel hasajor feature of the Communist technicalprogram. Moreocals have received training at Communist construction sites in the Third World, according to the Soviet press. In addition, tbe USSR and Easternhave built and equippedigher and specialized schoolsechnical training centers that reportedly havetudents. These training efforts haveon major client states in tho Middle East and South Asia; only0 Wackhave received on-the-job training.

echnical personnel fromcountries went to Communist enterprises for traininggain, most of them came from the Middle East and South Asia where they would return to work on steel and other heavy industrial projects.

Cuba entered the training field in force7 with the initiationew vocational training program at the secondary school level for students from African countries. At least

tudents from Angola and Mozambique arrived at the Isle of Pines in Cuba to participate in the program; up0 students areAs part or its new program to provide mass education services to its new allies in Africa, early8 Cubauban teacher trainees to Angola to teach at theand secondary levels to fulfill their degree requirements for practical field experience.

Acodemlc Student*

A vigorous recruiting effort among iheworld's African and Middle Eastern cli-

cnt stales broughtew students to Communisi academic institutions7 and raised the Third World student population in Communist countries to more0 (seeub-Saharan Africa, which has always dominated the Communist academic program, was represented by00 just two years ago. Most of the students are in the USSR on scholarships, which cover subsistence, living quarters, tuition, books, and round trip transportation.

Other Communist programs are not so East European countries apparently

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charge wealthier LDCs for scholarships, payable in hard currency. Few Third World students studying in Eastern Europe (cicept in Bulgaria) have complained in recent years about thetheir treatment, or living conditions. Many of the Soviet-based trainees can barely get by on theonth allowed by their all-expense scholarships, and most complain of poor living conditions, discrimination, andNonetheless, for most it is their onlyfor an advanced education.

0 students have returned home from European Communist schools over the past two decades. The acute need for skilled personnel has muted Third World criticism of Communisi training, and Communisi degree holders are encountering less discrimination lhan before in their search for employment at home.

APPENDIX A

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North Afrko Summory

orth Africa benefitedub-stantial expansion of the USSR's military and economic program. Moscow's new military agreements consolidated the almost complete Soviet monopoly over sales of modern weapons to Algiers and enhanced the Soviet role as the chief supplier of arms to Libya. These agreements, along with new pacts with Syria, give theosition of influence with the "Steadfastness Front" opposing accommodation with Israel; the Front was formed in7 afterPresident Sadat initiated his peace dialogue with Israel.

Algeria's new military supply contractsits commitment to buy Soviet arms and moved it farther toward its goal of mililary dominance in the area. Moscow's large-scale military supply program also provides Algeria with important political/psychological andsupportoroccan arms buildup which has been touched off by escalatingover the Western Sahara.

Libya's cumulative arms purchases from the USSR have risen5 billion. The supply of arms is ihe cement binding Soviet-LibyanThe Libyan arsenal of Soviet weapons, mostly deliveredives Qadhafi (he means of contributing to the Arab confrontation with Israel. Libya's own armed forces remain constrainedhortage of skills; vastof their rapidly growing stock of armsin storage, from which lhey can be readily withdrawn to resupply other Arab forces in the event of reopened fighting with Israel.

Elsewhere in the Maghreb. Morocco gave preliminary approvalhosphate agreement, the largest single Soviet dealhird World country.

Sections

Political and logistical support for Soviet and Cuban operations in Africa, combined withto Egyptian peace initiatives in the Middle East, has assuredreferred status among Moscow's arms clients. Soviet equipment orderedill expand and further modernize Algeria's military forces. It also will serve as the basis for reorganizing Algerian ground forces into mobile units better suiied for desertarge increase inoviet mililary technicians present7 is expected for training Algerian personnel in the operation and maintenance of the newMoscow delivered an impressive array of advanced equipmenthat includedfirstctlightcrs. OSA patrol boats, large numbers of tanks, armored vehicles, and self-propelled guns.

Some of the less sophisticated Sovietfrom Algerian inventories may find its way to Poiisano insurgent forces opposing the Moroccan/Mauritanian annexation of theSahara. Moscow has nol publicly endorsed Algcnan support of tbe insurgents, although rumors suggest that Soviet and East German civilian technicians are settingelicopter base at Tindouf. on the Western Saharan border to serve Polisario forces.

Ravomping the Eeooomie Raloiionship

Closer military ties have helped to revitalize Soviet-Algerian economic relations. Negotiations began in earnest7 on several majorunder6 framework accord. Includedecond steel plant to process iron ore from Gara Djibilet in western Algeria, petroleuma heavy machine building complex,am and irrigation project. Meanwhile, design

work proceeded on ihe M'sila aluminum plant and associated facilities,ailroadMW power plant thai will increasepower output by one-third.olling mill at the Soviet-built Annaba steel mill7 as partrogram to raise output at the plantillion tons.

Libya

The Libyan-Soviet relationship rests almost solely on arms supply. The Libyan arsenal of Soviet weapons, mostly deliveredas ended Tripoli's isolation from other Arabstates and to some extent has enabled Libya to recapture the influence it3 war. Libyan inventories can be and are being used to augment other pro-Soviet forces in the region; Libya already hasweapons to Soviet clients such as Ethiopia and the Palestinians.

Moscow values the relationship with Libya not only for the large hard currency receipts but also for the opposition generatedilateral Egyptian-Israeli settlement.

At the same lime that the Soviets haveprovided Tripoliodern military establishment, they have created enormous maintenance and training problems for Libya's armed forces. Still Colonel Qadhafi has been reluctant to expand the number of Sovietbeyondresent7 despite the deterioration of some equipment for lack of maintenance under tough desert conditions.Libya is turning to Cuba for military training and maintenance personnel.

Mauritania

Outside of France, the People's Republic of China has become the most influential non-Arab country in Mauritania, being the most important recent source of ecorromic aid. Chinese prestige stems as much from Peking's ostensible political neutrality in the Saharan dispute as fromin Mauritanian development. Work8 will begin on the ambitious deep-water port at Nouakchott despite Peking's reservations over its lack of construction experience on Africa's Atlantic coast. The project, which may bring as manyhinese technicians into the country, will more than double Mauritania's cargo-handling capacity.

Soviet-Mauritanian relations remained cool7 because Mauritania ts convinced that the USSR supports Algerian and Polisario military activity in the Sahara. Mauritanian suspicions extend to Cuba and North Korea, and in7 Mauritania broke relations with North Korea over the Sahara question.

The USSR has maintained cordial relations with Rabat while privately supporting Algeria in the dispute with Morocco over the Western Sahara. Despite the brief standdown in relations6 over Soviet military deliveries to Algeria, at yearend Morocco and the USSR were on the verge ofyear agreement, which is expected to provide up to S2 billion in credits for developing the Meskala phosphate deposits in southernncillary facilities to be constructedyear periodetwork of roads, and port, storage, and mining facilities. According to Morocco, combined trade and credit transactions under the agreement will total SIO billion by the end of the century, propelling Morocco into first place among Moscow's African trading partners.

Most ofmillion-ton annual output from Meskala will be exported to the USSR asfor the construction loan or will be bartered for other Soviet goods. Until Meskala comes onstrcam, the USSR will import phosphate rock from other mines in Morocco.

The number of East European professional personnel in Morocco was expanded furthernd Eastern Europe's commercialservices continued to grow. The number of nonmilitary technicians rose7omanians led,mployed as teachers and construction workers

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Pekingillion in credits loillion promised2anal andprojects. The new commitment made China the largest current Communist donor and accountable for one-fourth of total Communist economic aid to Tunisia Moscow's slightly smaller program is longer standing, and Soviet credits extendedave by now been largely drawn. Survey teams began studies7 on dam construction and expansionoviet-built technical school, both programed underillion creditshe only new East European economic aid7 wasillion of credits fordevelopment.

Sub-Snhoran Africa Sum maty

Rising international criticism did not deter Moscow from further military adventures in sub-Saharan Africahe value of new military agreements soared to triple the level5 when the Angolan insurgency offereda unique opportunity to expand its military role in Africa. Soviet arms transfers last year0 million, almost double previous peak deliveries to the region.

These record-setting transactionsajor shift in Soviet policy in the Horn of Africa, where Moscow abandoned its former preferred client. Somalia, in favor of Ethiopia soon after Mogadiscio invaded ihe Ogadenof Ethiopia inovietto provide modern equirjtrient to Ethiopia was accompanied by an embargo on shipments of offensive weapons to Somalia. Mogadiscio rcact--ed by abrogating4 Somalia-Soviet friendship treaty in November, withdrawingrights to naval and air facilities,oviet military advisers.

Conservative Arab backing notwithstanding, Somalia was not able to obtain substantial amounts of heavy arms from alternate suppliers. Unable to replenish its fast-dwindling arsenal and outgunned and outmanned morey the combined Ethiopian-Cuban force, the Somali invaders were defeated quickly andout of ihe Ogaden.

As in Angola, the unprecedented arms buildup in Ethiopia was accompanied by the introduction of sizable numbers of Soviet-sponsored Cuban military personnel. The Cubans have served as combat troops, maintenance technicians, andon the new equipment The buildup of the Cuban contingent in Ethiopia was pariear-doubling of Cuban military personnel in sub-Saharan Africa0 troops. Most other Cuban arrivals7 went to Angola to help the revolutionary government combat increasing challenges from the rebel National Union for the Toul Independence of Angolaebel forces continue operating in outlying areas.have also been moving into civilian jobs in increasing numbers.7uban nonmilitary technicians were present in black Africa, performing >obs as doctors, teachers, and construction workers, largely in Angola.

In spite of public outcry against Soviet-Cuban interference. Moscow continued to channel arms and advisers to southern Africa's guerrilla groups, operating against Rhodesia andThe availability of Soviet arms hasin an intensification of guerrilla activity against white strongholds and has helped to strengthen the radical black nationalists' ability to resist negotiated settlements. As the USSR has renewed and deepened its commitment to black liberation movements and to thegovernments backing the movements, it has become the major source of weapons for the principal frontline states

The value to Moscow of its slatus as black Africa's major military supplier was somewhat eroded by setbacks in several former client stales. In Somalia, the loss of extensive naval and air facilities hampered Soviet naval capabilities

in Ihc Rod Sea and Indian Ocean. Sudanits Soviet military ties and joinedArab states in calling for an end to Soviet military intervention in the Red Sea area.

Many African countries, favoring Africanto the continent's problems, are unhappy with Moscow's military presence and havethat the USSR focus on the region's economic problems. Moscow nonetheless has shown no inclination to change its comparative indifference to sub-Saharan Africa's economic affairs.t extendedillion in new economic aid. almost all to Tanzania.for technical assistance. Soviet economic programs on the continent have always been aimed primarily at North Africa. Sub-Saharan states have received less thanercent ofillion in worldwide economic commitments over the lastears. The number of Soviet technical people in black Africa grew by more thanercent7. employed mostly in administration, education, and public health.

hinese aid extensions to sub-Saharan Africa fell to an eight-year low, with Liberia and Cape Verde signing their firstagreements with Peking.illion of economic aid commitments to sub-Saharan Africa has made Peking the most effective international donor to the poorercountries. The recent decline in newwith African states probably stems from economic constraints within China rather than from an alteration in Peking's African policy.

angolc

The May coup attempt against the ruling Popular Movement for the Liberation of Angola (MPLA) demonstrated Angola's continuing need for Communist military services, technicalremains the bulwark of the Communist commitment lo Angola. The Communistin Angola, however, is resented by the population because of the economic hardships being experienced by the local people.

Communis! personnel have taken over some of the administrative and professional roles ofortuguese expelled atand7ommunist technicians, mostly Cubans, were trying to prop up Luanda's faltering economy.

Soviet advisers, numbering, are present in every government ministry and are, described as in virtual control of the police, railroads, aviation, and fishing.have even more influence at the operating level. They manage Angola's foreign trade and international banking, and Cuban doctors,and construction workers are prominent throughout Angola. Havanasecondary students for training in Cuba last year.

Despite infiltration of Communist personnel into almost every phase of Angola's economic life, the Communists have not been able to' contain ihe rapid deterioration of Angola'sMany shops in Luanda remain closed, and bread and meat are scarce. Petroleum, mineral, and agricultural production haveyear lows because of nationalization measures and shortages of skilled and management

A series of new Communist technicalagreements will raise further the level of Communist technical services:

Cuba is expected to increase its economic contingent to moregreement.

Bulgaria agreed todditionalspecialists, one-half of whom had arrived by the end

Hungary agreed lo provide technicalfor developing pharmaceuticals and other industries.

Romania and Poland signed generaldealing with agriculture, industry, and geology, all callingurther influx of personnel.

Latehe USSR and Angola agreed tooint committee to administer Soviet activities in Angola. The USSR will provide boats and crewsoint navigation company. Soviet trawlers have already begun fishingwaters7 agreement that gave the USSR fishing rights in exchange for trawlers, fishing equipment, technicaland fish for Angolan consumption.

Ethiopia's sudden shift from Western tomilitary supplies late6 touchedassive Soviet-led arms buildup,in sub-Saharan Africa. Moscow, which had judgedreater strategic prize well before the7 break withwelcomed the opportunity to demonstrate solidarity with Mengistu's Marxist-Leninist regime.

The Soviets, who had no illusions aboutcompetence, conceived of their taskilitary supply operation that would quickly convert the US-equipped and trained Ethiopian Army to Soviet military doctrine and the use of modern Soviet weapons. As in Angola, Cuba, acting in concert with Moscow, providedof combat-support troops and technicians to man and service modern Soviet-supplied arms. Tbe number of Cubans in Ethiopiand was continuing to climb at yearend.

The Economy

. Ethiopia's military expenditures have further weakened the already ailing economy, andto facilities in outlying battle areas has added to the strains. Addis Ababa's appeals to Communist countries for additional economic assistance produced few results. Moscow made no new economic commitmentslthough it allowed Ethiopia to draw0 million credit line for petroleum anddevelopment Capacity at the Soviet-built Assab refinery will be increased byercent under the program, and Moscow willipeline and oil storage depots and will develop an irrigation system in the Awash River area in easternillion East Germanupgrade Ethiopia'sroad transport and portonly new aidommunist country. Ethiopian fund-raising tours to other Eastcountries were less successful,ew small contracts for vehicles may have been signed.

China7 maintained the largest active aid program in Ethiopia. Still operating under0 million line of credithina continued work on the Waldiya-Worcta road and small electrification projects. Peking also signed agreements totadium and textile, porcelain, and cemenl plants.

Modogatcor

Western countries and institutions continue to dominate trade and aid in Madagascar despite deliberate government policy to loosen political ties with the West Madagascar's encouragement of Communist lies in the past few years has resultedighly visible and publicizedinflux and Western withdrawal from this small Indian Ocean country. While President Ratsiraka has clearly displayed an ideological preference for the socialist camp, he has no desire to isolate his country from Westernsupport and remains wary of Russian pressure for Soviet naval facilities at Diego Suarez.

illion in Soviet economic credits, extended4 agreementlour mill, power and irrigation projects, andement plant, are overshadowed byillion in economic commitments. Work isto begin soon on China's largest project, an all-weather road between Antananarivo and ihe port of Tamatave. China completed an agri-cutural machinery plant ai Tulcaralso began workatch factory and an experimental farm and conducted studies for small hydroelectric plantsharmaceutical plant now in the planning stage.

Moll

Mali's continued willingness lo provide the USSR with facilities for ils ventures in southern Africa warmed Soviet-Malian relations. AtMoscow pledged new aircraft to augment Bamako's MIG inventory.

illion economic assistancealthough not as spectacular as Moscow's military support, has won the admiration of local officials because of the effectiveness of Chinese technicians. With lessillion inremaining to be drawn on oldChina will be winding down its aid effort in Mali unless major new projects are announced soon.

Moiambique

Earlyozambique's ruling partycries of economic and politicaldesigned to transform Mozambiquearxist-Leninisi slate and signed long-term friendship agreements with ihc USSR and Cuba. The revolutionary government's ties with the Second World springecade ofpolitical and financial support ofstruggle for independence from Portugal. Since independencehe Communist presence has increased steadily.

Soviet Military Presence

Mozambique relics on Communist countries for its arms, provided in response to President Samora Machel's call for aid to defend his nation against Rhodesian cross-border operations.deliveries include medium tanks, armored vehicles, personnel carriers, artillery pieces,guns, and rocket launchers.

We estimateoviet anduban military personnel were in Mozambiquend their number continued to climb early

The Economic Presence

Mozambique's economic ties with Communist countries have developedlower pace than military lies. Efforts to induce governmentto buy Communist goods have failed because price, financing, service, quality, and delivery times are less favorable than those of traditional European suppliers. Few financial benefits have flowed to Mozambique from its Communistaid agreements, and Maputo probably is paying cash for most Communist technicalThese services, largely in administrative and professional jobs vacated by the Portuguese, constitute the strongest bonds in ihe economic sphere.ommunist economicwere in Mozambiqueedubans who arrived under an agreement signed by Fidel Castroisit in March.

The only ongoing Communist projectishing licet operation out of Beira and Maputo, run by the Soviets and Cubans. In return for fishing rights, the USSR has delivered some low-quality fish to Mozambique, an arrangement that Maputo has protested. The USSR hasto help develop, with Bulgarianectares of agricultural land in the Limpopo Valley. The project would be the first major European Communist aid undertaking for Mozambican development

China, unable lo. contribute appreciably to Mozambique's militaryillion line of credit5 and reached agreement7 loextile plant with the credits.

Nigeria

Communist countries, striving to participate in Nigeria's ambitious economic and militaryplans, were successful in obtaining several large development contractsost were cash deals, although some of the contracts with East European countries may have allowed drawings on credits outstanding from earlier agreements.

The most important Communist economicinmuch-discussed Ajaokuta steel millunder way late in the year. First-stage production is scheduledith full commissioninghe value and terms of Soviet participation in the project

have never been announced. Soviel technicians also arrived in Nigeria lo start workilometers of petroleum pipeline*illion commercial contract signed last year. Completion is set for

East European countries also bid on newand undertook work on some already awarded:

Romania iniiiated constructionillion wood-processing planl.

Hungary began deliveries ofillion contract,

Poland, with the most extensive business interests in Nigeria (three joint companies, which trade in complete plants, electrical equipment, pharmaceuticals, and fishingproducts) won contracts for power equipment to develop coal mines.

Czechoslovakia offered equipment for water resourcesement plant,rewery.

Somalio

The expulsion of Soviet advisers in November and the abrogation of4 friendship treatyear of deteriorating Somali-Soviet relations. In the faceoviet arms buildup in Ethiopia and the cutoff of military spare parts deliveries to Somalia. Mogadiscio denied the Soviets access to naval and air facilities inThese included (a) Soviet-constructedstorage depots,aval missile-handling facility,ommunications facility,y dock ator use of the Soviet Navy, as well as (e) military airfields, manned and used by the Soviets for long-range reconnaissance flights.

Military Relation!

Encouraged by Arab promises of military and financial support. Mogadiscio cut all military tics with Moscow in November, and by the end of the year, the USSR had evacuatedan mililary conlingent and had dismanlled andthe advanced equipment it had erected on Somali soil.

A number of Soviet military officersattached to Somali defense planningwere transferred to Ethiopia, andomali officer trainees were recalled from their studies in the USSR

Until Moscow's courtship of Ethiopia lateomalia ranked as Moscow's largest arms client in Black Africa and (he first toriendship pact with thef its personnel had been trained in the USSR, and its inventories included Soviet medium and light tanks, jet fighters, bombers, helicopters, and advanced air defense missile systems.

Somalia's long dependence on the "Soviet Union for arms and training severely reduced its options in obtaining replacements of comparable weapons from new-found Arab and Western supporters. Major items such as tanks, heavy artillery, and aircraft were not available.was unable to sustain operations in the Oga-den against an adversary enjoying full Soviet support.

Ecorsomie Relations

The rupture in the Somali-Soviet military supply relationship did not affect their economic ties nearly so dramatically. First, the Soviet commitment wasillion extendedyear period) of which onlyercent had been drawn, and second, more5 million of Arab loans has more thanfor the loss of Soviet economic assistance.

Somalia had complained about Sovietfrom the onset of the programost recently. Moscow's largestam and power station on the Giuba River, had come under fire from Somali officials becauselagged behind schedule. Work on that project is now suspended, awaiting assistance from other donors. Mogadiscio is also expected to seek Western assistance for developing its fishing industry, which the Soviets had dominatedhen Somalia granted the Soviet fleet

|fl

exclusive fishing rights in returnillion in aid

CommunistMogadiscio'seconomic aid donor because of its tow-cost,ncrease itssupport to Somalia and to providefor projects abandoned by the Soviets. Most or Peking's projects, which have been built under SIillion in credits extended3ere nearing completionseat stadium was opened, and the second section ofilometer Beiet Uen -Burao road was completed.

Tonianlo

The USSR provided its first development aid to Tanzania inillion forand training facilities. As forillion Soviet credit extendedstill has not been drawn.

Peking remains by far tbe largest donor of economic aid. Despite recurring reports last year tbat the PRC intended to reduce its economic program in Tanzania, tbe Chinese cut back their presence only in Zanzibar, which is phasing out Chinese aid. The Chinese-built Tan-Zamcontinued to operate below capacityof management and scheduling problems that have slowed freight car turnaround in both Tanzania and Zambia, Nonetheless, the line has helped to ease congestion at the port of Dar es Salaam.

Olhar African Cauntrtai

The USSR undertook geological surveys in Benin underillion4 credits, while the Chinese made progresstadium and on agricultural and light industrial projectsillion of credit*.

Botswana's dealings with Communisthave been confined to China. Peking has delivered small arms, ammunition, andgunsew Chinese military personnel (the only Communist military advisers in the country) accompanied the equipment. Botswana sought arms from China after Western countries refused to equip its small new defense force, organized to police insurgent movements along its border with Rhodesia Peking alsoeam lo study agricultural projectsgreement forillion in assistance.

2 Chinese credit has been Burundi's only Communist developmentConstruction picked up on5 million Mugcre River hydropowcr complex being built under the credit, but work lagged onkilomcter Bujumbura-Rutovo road because of delayed deliveries and Burundi's reluctance toarge Chinese workforce. Inomania agreed to extend agriculturalfirst from Easternandoint company to prospect for minerals.

China enhanced its close relations withby financing equipment andydropower complexultural center being constructedespite Moscow's position as Cameroon's number one Communist trading partner, Soviet economic assistance has been disappointing, and no work is under way.

Communist countries have been reluctant to give the Central African Empire (CAE) much aid because of the eccentric economic policies of the newly crowned Emperor Bokassa. who last year blew his country's foreign exchange reservesoronation ceremony. The USSR and China have largely confined their programs to technical assistance in education and public health. China hasew agricultural personnel and is studying assistance to road and bridgeUnder agreements signedomania has established four joint companies with tbein the timber industry, one inand one in mining.

China agreed to go aheadmllion stadium underillion economic aid commitment to Chad- Peking's program has been low profile and free of most of the frictions that have characterized tbeillion Soviet effort.

In ihe Congo. Chinese technicians installed the first of four generators atillion Bouenza Dam and power plant, for which Peking has provided at least one-third of tbe financing In October. Peking signed an agreement for expanded cooperation, which may result in aid for several light industrial plants in the areas served by the power planl.

Gabon, one of the smallest OPEC producers, has approached European Communist countries for new sources of financing for iis internal development programs. Its ambitious plansbe realized from petroleum revenues alone, and Wesiern lenders have expressed concern over Gabon's mounting liabilities.ear of negotiations. Romania offered to finance the Belinga-Booue section of the trans-Gabon railroad in exchange for iron ore. Gabon also resumed negotiations wiih the USSR, broken offS. on Soviet assistance to roadfishing, and industrial development.

Gambia* officials have become irritated wiih slow progress on agricultural projectsillion Chinese credit. Gambia has publicly criticized the quality of Chineseequipment, lack of spare parts, and friction between Chinese agricultural technicians and local farmers, largely because of languageChina also has delayed the starttadium studied last year.

Plans to reinstate anillion in expired Soviet credits for new projects in Ghana falterednd work progressed slowly on projects reactivated6refabricated housingold refinery, and an atomicoscow sentillion worth of food aid. but only Romania signed newcooperation in mining, oil exploration,and forestry development. As before, the Chinese supplied skilled labor for irrigationand experimental farming and wereassistance for reestablishing cottageandaustic soda plant

Guinea's President Toure is peeved at Moscow for not living up to its commitment to equip.

train, and resupply Guinea's armed forces. These were promised as payment for use of Guinean facilities (oil storage, airfield, and naval) to support Moscow's growing mililary involvement in southern Africa. Conakry has received lessillion of4 billion in Soviet arms that have poured into tropical Africa in the past five years.

Communist programs have receded inin the facearming of Guinean relations with the Wesi and the advent of new OPEC commitments, which have bolsteredmore moderate international policies. Arab countries have extended moreillion in ihe past four years; projects now under study include mining and transportation projects

Guinea nonetheless remains Moscow's largest economic aid recipient in sub-Saharan7 agreement extended Sovietexploration in several areas. This project and an oceanography school arc now the only ongoing Soviet projects in Guinea.

Increased Wesiern aid and Ihe risingof Soviet advisers have loosened Guinea-Bissau's close posiindcpcndcncc ties with Communist countries, which dale frommilitary support to the liberation struggle. Guinea has tried toyear Sovici fisheries accord that calls for rental of Soviet trawlersoint Soviet-Guinean fishingtbe training of Guinean nationals, and construction of fish-processing facilities. Inthe USSR was given access to Guinea's rich fishing waters and harbor facilities. The Soviets apparently have not lived up to their side of the bargain lo provide training andassistance. Meanwhile, the Soviets are blamed for fish shortages in the once fully stocked Bissau markets. Western countries now have been invited lo fish Guinean watersthe Soviet agreement is still in force. Despite these frictions, the USSR began bauxite prospecting and construction of diesel power plants underillion credit agreement. China, the first Communist country to offer economic aid after Guinea's independence.

worked quietly on agriculture and irrigationtrying to restore its political image, which had been impaired by support for the wrong side in the Angolan conflict.

The Irory Coast's gradual opening of relations with Communist countries has affected mainly Romania. The two countriesoint commission7 to study Romanianin mining, geology, energy, forestry and agriculture, and the petroleum industry.

Lesotho which has shunned Communisithat might offend South Africa, wasdiplomatic relations with North Korea and Cuba at yearend. Earlieresotho had sent its first govern ment-sponsored traineesommuniststudents to the USSR for civil air training.

Liberia's commitment to the West and lo the free enterprise system has not been affected by its slowly expanding relations with Communist countries. Monrovia signed an economicwith China in Februaryfirstommunistthe same lime that it established diplomatic relations with Peking and expelled Republic of ChinaAtRC technicians moved in to replace departing ROC personnelugar plantation and refinery and rice cultivationRomania has suggested joint ventures in fishing, foreslry. car assembly, iron oreand petroleum to supplement the joint rubber-processing plant openedthat has been operatingoss.

Chinese relations with Mauritius remained cordial despite tbe small magnitude of project aid disbursedillion credit agreement. Inauritanian delegation traveled to Peking to complelc plans foran airport, the largest project planned under the agreement.

China reinforced its links with Niger byprotocols under SSI million in4 for agriculturalement plant, andtadium in Niamey.

A high point of the year in Rwanda was the openinghinese-builtillion road from Kigali to Rusumo, on the Tanzanian border. The project, completed several months ahead of schedule, has won its builders wide respect and gratitude. Rwandan officials have petitioned the Chinese for further project assistance, now that most ofillion line of credit has been disbursed,

A delegation from Sao Tome and Principe visited Peking in September to discuss Chinese agricultural assistanceSagrccmeni with the islands. No activity was notedimilar accord signed with the USSRuba delivered two fishing ves-scls to Sao Tomepparently as grants, and promised aid to education and public health.

Polandishing wharf in Senegal,illion credit for fisheriesthat includes joint fishing operations out of (he port of St. Louis. Poland is the only Communist country granted fishing rights withinileimilar Soviet request has not been acted on. China, still Dakar's largest Communist donor, continued work on several agricultural projects3 credit. Meanwhile, planstadium remained stalled.

The new government of the Seychellesa Soviet proposal for fisheries assistanceoint fishing venture and criticized the unauthorized presence of Soviet trawlers in its maritime zone.

China has been Sierra Leone's largest single aid sourceast implementation and the high visibility of Chinese projectsillion credit have generated good9 million Chinese-built stadium neared completioninetations have been turned over to Sierra Leone;ugar plantation-refinery was opened in November. Other projects under wayovernment officemall hydroelectric power station, and prospecting for iron ore.

The USSR has come under fire for notthe termsishing agreement signedhich calls for construction of harbor facilities, provision of trawlers, and training of local fishermen in return for fishing rights. Sierra Leone claimsillion of annual losses from Soviet fishing in its territorial waters.

Sudan,ember of the coalition of conservative Arab states, expelled all Sovietadvisers in Mayrotest against Soviet backing for Ethiopian- and Libyan-supported dissidents in Sudan. Despite Khartoum's plans to expand its sources of military supplies, Sudan still relies heavily on Soviet spare parts forillion worth of equipment it has already purchased from Moscow. Some of its needs were filled by Peking'sillion agrccmeni to supply spare parts for armor and aircraft. The accord also included small arms forman infantry force.

On completion ofilometer Wadedaref roadeking accelerated activity on agricultural and transportationand promised more assistance to Sudan's inland fisheriesextile plant.

Soviet-Sudanese political differences did not inhibit East European countries from providing new credits, their first in several years. Eail Germanyillion in aid andillion for equipment purchases by Ihe Sudanese Electricity and Water Corporation: Czechoslovakia is to furnish prefabricated houses and machinery and equipment for variousprojects under an old credit; and Romania,ew trade agreement, allocatedillion of credits for building materialsonference hall and textile plant now under way.

China agreed to construct anillionin Upper Volta and reiterated itstoillion cement plant, both to be financedillion credit.

Suspicions of Sovicl involvement in Ihe Shaba conflict produced additional strains in Zaire's relations with European Communist countries in

inshasa avoided an outright break with the Soviets, although it suspended diplomatic relations with Cuba and East Germany. China. Zaire's closest Communist ally, airlifted small arms, antiaircraft guns, and field artillery to Zaire's forces during the invasion. Peking also continued heavy support to agricullure and workedports complex and conference hall in Kinshasa35 agreements. Nonetheless. Kinshasa retreated further from its brief flirtation with some of the more radical nationalization measures introduced afterMobutu's trip to China

Eos! Asm

ommunist countries continued to pursue their political interests through an expansion of commercial ties with East Asia Soviet overtures toward Indonesia, initialedere set back by Indonesia's turndown of large Soviet credits for an alumina plant. East European countries made an unprecedentedto reverse their progressively worsening trade balances with the region.

0 million Czechoslovak offer to Burma for three projects in the motor vehicle field was the largest single credit ever offered to Rangoon. The credits wouldercent interest and allowears for repaymenthree-year grace period, far more liberal terms than those usually provided by East European countries. Czechoslovakia previously hadto Burma for buying trucks andractor assembly plant, while assistance from other East European countries and the USSR hasillion. Despite repeated rumors of Chinese plans to provide large amounts of new aid. trips by Burma's President to Chinaproduced no new credits. China agreed toiceextile plant,iadium and began workower plant; these projects are being financed under the1 agreement

China received its first irade mission from Fiji in October, as part of its effort to establish closer lies with small Pacific island nations.

Moscow's0 million offer to Indonesia foron alumina plant on Bintan Island apparently was turned down7 because of Jakarta's concern that there would be an influx of large numbers of Soviet technicians. Indonesia now is trying to obtain funding from Arab countries. At yearend. Moscow awaited replies to otherpower plantsin-processing facility.

Olher Communist countries tried to reverse the decline in their sales to Indonesia, which had cul deeply into their usual trade surplus with Jakarta. Bulgaria expressed interest in providing eight-ycar credits for suitable development projects.

Renewed Soviet and East European initiatives to expand their exports to Malaysia wereto offset0 million annual hard currency expenditures for natural rubber and tin. China, on the other hand, continued toarge surplus in its trade with Malaysia because of consumer goods exports. Kuala Lumpurone of China's largest Third World hard currency customers despite the cooling ofover Peking's failure to join Malaysia and other members in the International Tin Council.

. Several East European countries postedattaches to the Philippines for the first timend Czechoslovakia signed its first trade agreement with Manila. In January. Manila announced salesons of sugar to Chinaons to the USSR. By the end of August, shipments under these twohadurplus5 million in Manila's combined trade with these twoSome of the sugar shipped to Chinawas barteredortion of) of Chinese crude oil shipped to the Philippines

The USSR and China expandedactivity in Singapore during the year.joint Singaporean-Sovietformed inground5 million complex lo process seafood from Ihe Soviet fleet for world markets. The project, the largest of its kind in East Asia, will be completed in two years. Al the same lime, the Soviet merchant and fishing fleets are expanding their already heavy use of Singapore's shipyardChina also promised to study possible use of these facilities for ship repairs.

Thailand's new military government moved lo expand commercial relations with Communist couniries. The Foreign Ministry immediately approved proposals to sign govern mcnt-to-govcrnment agreements with the USSR and East European couniries, and Thai officials offered Peking sugar from surplus stocks.

latin America Summary

In addition to its general interest in exploiting Latin Americaource of food and raw materials. Moscow has cultivated Peruajor client for sophisticated arms in the past threeampaign toide array of military equipment to olher Latin American countries has borne no fruit, the Soviet-Cuban military partnership in Africa having created new concerns aboul Sovici intentions.

Communist countries, slill irying to bring their trade with Latin American countries closer to balance, have offered large new credits and urged faster drawdowns on outstanding credits, Moscow bid on several billion dollars in power contracts in Brazil and Argentina, with whom Moscow5 million trade deficitt also0 million in contracts5 credits with Colombia for the Alto Sinu hydropower project, the largest Moscow has yet undertaken in the region,illion deal with Bolivia for miningThe new Colombian agreement brings Soviet power equipment sales to Latin America to0 millionast European countriesillion in new credits, mostly to the smaller countries in the region and encouraged the use of credits to finance Latin American imports. The USSR also has begun to use oil salesore effective and rapid means

of reducing its deficit.7 these salesthe Soviet deficit with Brazilittle less than SIillion from0 million level of earlier years.

All Communist countries continue to beby latin America's preference forWestern goods, and5 million of4 billion of Communist credits made available to Latin couniries8 have been drawn.

Argentina

Sharply increased Communist imports ofgrain and meat, in the face of stagnating exports, threw Communist trade balances with Argentina more deeply into the redhina failed to reduce its persistent deficitof purchases of agricultural goods and because of its lack of sales potential inSoviet and East European efforts to reduce0 million deficits by expanding sales of industrial machinery and hydroelectricalso proved fruitless.

In power development, ihe major competitive area open to Moscow. Argentina's conservaiive military government showed some willingness to consider Soviet proposals on planned projects. Moscow now is preparing bids on (a)illion Parana-Medio project;1 billion project at Corpus; and (c) the Yacyrcta-Apipe hydropower scheme, which also will1 billion price tag. In the meantime, the USSR continued work5 million in poweralready in hand, and assembly workon (he first ofurbines at Salto Grande.

East European countries continued to push sales of machinery and equipment in an effort to reduce their trade deficits. The long-delayed ratification by Argentinaumber oftrade and credit agreements paved the way for Romanian and Polish offers ofand equipment for extractive industries. The offers were made under0 million lines of credit extended by each countryalsoort cranes4 credit.

Bra.il

Brazil retained us position as (he Communist countries' number one trading partner in Latin America. The growing one-way character of the trade has led lo aggressive Communist sales efforts and lo Soviet pressure on Brazil to draw existing credits. Failure lo redress theannual trade imbalance produced tensions that could threatenuture as anSoviet and East European source of food and raw materials. Brazil, wishing to hold on to us lucrative Communist markets,pecial committee to reduce the trade imbalance with the East.

Czechoslovakiaigorous satesurging use of0 million supplier credit, andard currency payments agreement to replace bilateral clearingPrague offered0 million power plant in exchange for iron ore and pressed Brazil to buy Czech machineryillion tire plantement plant, both now on the drawing boards. Hungary proposed jointin aluminum, pharmaceuticals, and heavyvehicles, cranes, andequipment. Romania extended commercial credits in addition to0 million long-term credits provided5 for steclmakingAmong the more successful sales overtures was Poland's equipment sale to Brazilianfor developing coal reserves in Colombia.

7 China negotiated its first long-term government-to-govcrnment trade agreement with Brazil.

Peru

Soviet Retotiom Depend on Arms Soles

1 The debt wis rescheduled early1oraiomirn on principal pBjmenu iltoujh liDO

Large new Soviet accords with Peru forweaponryontinuing flow of military hardware helped consolidate Moscow's position with Lima's military governmenteru was in the position of asking Moscow toits rapidly expanding military debt service while taking deliver) of additionalean-

IS

white, Peru tried to improve relations with its neighbors and toayments crunch with assistance from international lending

Arms Transactions Continue High

Arms sates continued as the centerpiece of Moscow's policy toward Peru.7 Peru took delivery ofighter/bombers, the most advanced aircraft yet deliveredatincountry. Other deliveries7 included helicopters, transports, and tanks. Theseare supporting Lima's push for military power status on the west coast of South America.

Rumors that moreoviet mililary technicians are stationed in Peru have not been substantiated. We estimate the number. In addition, we estimate that the Soviets have trained moreeruvians in the USSR in maintenance and operation of equipment.the training effort, Lima still tackstrained personnel lo handle theSoviet hardware. In addition, thehave had problems in supporting Soviet weapons systems because of inadequate supplies of spare parts and problems caused by climate and topography. The Soviets claim thatabuse the equipment and do noi understand preventive maintenance concepts.

Economic Assistance

Even though the USSR has been eager to expand economic relations with Peru, Lima has not shown much interest in buying Soviet goods. Earlier plans toteel plant at Nazca with Soviet aidachinery and equipment plant at Arequipa appear to have been shelved for the duration of Lima's financial crisis.only economic aid to Peruillion credit (extendedor the Paita fishing port, oil storage tanks, and preliminary work on the Olmos irrigation project. Most of the credit has been drawn.

Peru's austerity program, which restrictsto esscnlial items, is inhibiting the use of5 million of other Communist credits extendedo expand trade.promotional efforts7 io increase equipment sales lo Peru sparked little interest in Lima, itself wrestling wiih serious payments problems.

Lima signed no major new accords with East European countrieszech offers of credit for agriculture, mining, and petroleum industry assistance were still under discussion ai yearend, and Poland failed loillion machinery and equipment credit that expired despile Warsaw's desire to expandio Peru. Earlier Romanian interest0 million Antamina copper(for which iteasibility studyooled because of Romania's plans to develop its own low-grade copper resources.

Other Latin American Countries

Romania and Barbados established diplomatic relations,

ffoV/vicu-Communist economic relationsto focus on Bolivia's tin industry. We expect Soviet imports8 to reach double7 levelesultSO million December trade contract. Soviet support forin-processing plant at Potosi (the world's largest) remains the most important Communist project in Bolivia.7oviet technicians (the second largest Soviet contingent in Latin America) worked onon planl, now in its third year of construction.and construclion delays caused cost overruns at the plant, which have tripled the original foreign exchange cost estimates. Completion is now scheduledespite these problems, plans arc going aheadecond Soviet tin plant, and Bolivia contracted anillion in mining equipment from the USSR7 under an openended credit.

Romania extended its first creditsillion for oil and gas industry equipment and East Germany alsoillion to outfit hospitals and build grain silos. Poland completed deliveries4 million plate glass factory, and Hungary, which already has sold

hospital equipment to Boliva. offered to icll transport and communications equipment during the first meetingolivian-Hungarianin November.

Chile's diplomatic relations remain suspended with all Communist countries except China and Romania. Nonetheless,ast European trade increased after agreements were reached for settling debts incurred by the AllendeAccording to official Chilean figures,paid Communist countries7 on its long-term debt5 million on short-term obligations.

As partrive to diversify its trade, Colombia expanded commercial relations with Communist countries byoviet bidydropower project at Alto Sinu.W plant, to be built under-ercent open-ended credit agreement signeds scheduled forin the. During the year,authorized Romania'scompany to establish an office in Bogota4 agreement for participation in coal, phosphates, and petroleum development. Bogota and Romania alsooint petroleum drilling company earlyast Germany, trying to capitalize on Colombia's more liberal trade policy, offered to setextile piint under credits provided

Costa Rica's economic relations withcountries picked upollowing the signing of new accords with the USSR and Romania. Even though Moscow did not act on its earlier offer for0 million Borucaproject, the USSR agreed to undertake mineral and oil prospecting.hange inthat occurred early8 couldeduced Sovietomania signed anin April to initiate studies on low-grade Costa Rican bauxite deposits.

Despite continuing coolness in Ecuador'srelations with Communist countries and its refusal of Soviet economic and military aid offers, the military government increasedcontacts with Eastern Europe

Quito pickedungarian credit offer for educational, medical, and agricultural equipment and an East German offer to barter educational equipment, vehicles, and chemicals for bananas and cocoa. Similar small pacts were signed with Czechoslovakia and Romania, and at yearend Quito was negotiating with Cuba to initiate formal trade relations.

Even though Guatemala has not established diplomatic relations with any Communistit expanded commercial dealingsumber of them7 and threatened to turn to Communist countries for military supplies if the West would not meet its requirements.

Guyana applied for association with thefor Mutual rkonomic Assistance (CEMA)oining Colombia and Jamaica among area countries making this overture. Georgetown also signed its first aid accord with the Sovietframework agreement for mineral, forestry, and agricultural development that sets tbe stage for future economic relations with therotocol paved the wayoint Soviet-Guyanese fishing venture. Moscow will train Guyanese personnel on Soviet trawlers,eepwater port, and survey Guyana's marine resources. China and East Germany, the only Communist countries that had previously provided aid to Guyana, renewed and accelerated activity under their programs; East Germanyillion of additional credits, mostly for bauxite development, and agreed toehicle repair shopegetable oil plant under earlier credits. China initiated plans to start hospital construction in New Amsterdam2 credit and allowed Guyana to substitute agricultural products and raw materials for consumer goods under their barter agreement.

Soviet and Hungarian agreements withlast year broadened Kingston's relations with Communist countries beyond the46 Chinese commitments. Theagreement is intended to aid in the construe-tionon cement plant (estimatedeological surveys, and the setting

up of training centers for repair and maintenance of motor vehicles and agricultural and industrial machinery. Hungary's S8 million in credits are to be divided equally between consumer goods and industrial products. By yearend Budapest had delivered about one-fourth of its commitment, and negotiations were under way for Hungarian sales of industrial and medical equipment,and buses. No progress was noted on Budapest's0 million offer to build an alumina planl.

For the most part. Communist projectfor implementing recent accords with Mexico remain on the drawing boards. Mexico isthe use of Polish creditsoalimilar fate is expected for Soviet participation in Mexican mining, metallurgy, electric power, and agricultural development contemplated in6 economic cooperation agreement. Mexico didillion East German credit for the steel industryillion Hungarian equipment credit East Germany and Mexko also agreedoint venture forprecision instruments, reportedly East Germany's first such investmenthird World country.

Panama began discussions in July to establish commercial and economic relations with the USSR thai could include (a) establishmentoviet bank in Panama; (b) Soviet participation inydroelectric plant; (c) annual Soviet sugar purchases0 tons of sugar, beginninghinese delegations, which arrived later in the year, concluded antechnical assistance agreement andpossible traderanch office of tbe National Bank of Cuba was opened, mainly to process trade transactions through the Colon Free Zone.

Despite Uruguay's hard-line anti-Communist policies. Montevideo allowed the Soviets ioa mililary attache in the capital last year. Moscow continued its involvement in Uruguay's power industryupplier of equipment to the joint Argentine-Uruguayan Salio Grandeproject. Uruguay0 percent share ofercent credit.

Hungary, the only other active Communist aid donor, delivered several dicscl trains, its first delivery9 million contract.

Veaezmelan efforts lo expand commercial ties with Communist countries yielded few returnslurry of visits by East Europeanofficials resulted onlyeneral contract with Poland to develop coal and nonferrousrilateral petroleum deal entailing Soviet oil shipments to Venezuelan customers in Europe in return for Venezuelan deliveries to Cuba was not implemented, nor was there any action under6 economic and technical cooperation agreement.

Middle East Summary

oscow continued to focus on the Middle East, where its most important foreign economic and military programs wereThe deep concern of other Arab leaders aboul Egyptian peace overtures opened newfor Soviet diplomatic initiatives and brought the radical confrontation states into closer alliance with Moscow. Weapons orders by Syria and Iraq7 confirmed the importance of (heir military supply relationship with the USSR. Moscow also posted its first sales in the lucrative Persian Gulf armsmillion worth of air defense equipment to Kuwait. One of the USSR's smaller Arab clients. South Yemen, assumed new importance toward the end7 as Moscow sought expanded Red Sea air and naval facilities at Aden to replace facilities lost in Somalia.

Closer arms reunions with Syria contrasted sharply with events6 when Moscow bad tried to manipulate the Syrian position byarms. Syria has urgently requested more arms to expand and modernize its armed forces in the eventar against Israel without Egyptian support.

Soviet commercial interests also moved into the foregroundxtensive Sovietdeals with Iraq and Iran, initiatedere expandedt yearend. the USSR

was negotiating several billion dollars worth of development contracts with these two nations, its top Third World customers for civilianMoscow and Tehran were near agreement on Soviet participation3 billion gas pipeline being built from Kangan lo the Soviet border as part7 multilateral deal with several West European countries Iran also has been discussing Soviet assistance for two new hydro-powerSOO million aluminum plant, and expansion of highways, railroad, and port facilities.

In Iraq, the USSR moved to implement SI billion in contracts signedegotiations for building the Mosul Dam were completed, and the Soviets began to work on several power and irrigation pro>ects. which together wouldillion declares of cultivable landW to Iraq's power capacity.

Moscow's relations withthe centerpiece of its Third World economic and militaryto new lowspparently willing to lose what was left of the longstanding Soviet-Egyptian relationship,Sadat embargoed cotton sales to both ihe USSR and Czechoslovakia7 andoratorium on military repayments to the USSR. Soviet-Egyptian trade sankive-year low.

Despite the decline in trade with Egypt. Soviet nonmilitary trade with the Middle Eastall previous levelsoosted by the new wealth of the oil producers and by expanded Soviet gas and oil imports from the region (more than one-half of Moscow'sillion in imports from the Middleoviet exports ofillion were heavily weighted5 million in equipment and other goods going to Iran, which became the most important Soviet market in the Third World.

ast European countriestheir efforts to exploit the well-heeledEast market for goods and services, while seeking to obtain long-term commitments for oil supplies. Iran sold its first oil to Poland and increased deliveries to Bulgaria and Hungary, although remaining cool lo long-term barter proposals Iraq sold at leastf crude oil to Eastern Europe and became the foremost Third World trading partner for East Germany and Hungary and the largest Third World buyer of Polish industrial equipment.

E9YP'

Soviet Retotiom ot Altime low

Sadat's surprise peace initiative toward Israel in7 further reduced prospects that the USSR and Egypt would mend the serious rift inyear relationship. His appearance before the Israeli parliamenta stormy year during which he applied an embargo on cotton shipments to tbe USSR and Czechoslovakia, stopped mililary debtto the Soviets forears anda cut in Cairo's annual economic aid repayments to the Soviet Union toillion annually. Moscow reacted inmild fashion to Sadat's abrupt economic decisions; Kremlin fearseparate Egyptian peace effort led the USSR to support the Steadfastness Front couniries when they hastilyonference in Tripoli to condemn Sadat's actions.

Czech-Egyptian relations deterioratedonsequence of Prague's identification wiih the Soviet arms embargo. Cairo's economic relations with olher East European couniries suffered only slight damage, even afier Egypt closed Soviet and East European cultural centers in December.

The Miliarytondjt.ll

Sadat's abrogation of the Soviet-Egyptian Friendship Treaty6 had marked the final chaptereries of actions that ended the Soviet-Egyptianillion military supply

The pinch is being felt in all Egyptian military services; its effects were intensified in spring

hen the last contingent of Soviet military technicians left Egypt. Thisovietpresence that had0 men from

hen Sadai expelled most Soviet military advisers

tfl

The situation was also worsened because Egypt could not buy replacement equipment and spares from East European countries as it has in recent years. Evidence also mounted thaiwas pressuring East Europeans not to deliver on previous agreements.

Debt Settlement Stalemated

The continued failure of Moscow and Cairo to agree on rescheduling Egypt'sillion military and economic debt further strained the Soviet-Egyptian relationship. Moscow's refusal toCairo's requestyearperiod afterears' grace finally goaded Sadat intoyearon Egypt's military debt. Two months later, in November, Egypt's Cabinet announced that economic aid repayments to the USSR would be cut toillion annually.

Payments due on the economic and military debt had been handledhrough Egypt's large trade surpluses with the USSR. Coiion had accounted for more thanercent of5 million in exports to the USSRnd textiles and yarn made up an additionalercent.

Cairo expects to sell the raw cotton previously reserved for Communist customers to hardbuyers at acceptable prices. It also is in the process of diverting textiles and yarn, along with other manufactures, to Western markets.

Czechoslovakiarade protocol8 in November. Prague okayed thedespite Egypt's refusal to sell Prague cotton on any terms.8 protocol callsillion Egyptian trade surplus thai will be used for debl seitlement. about one-half of7 payment.

Other Economic Relations Perslit

Despite Cairo's provocative actions ina Soviet contract for tankers wilh iheshipyard and rejecting Sovietin exploiting phosphates at Abu Tariur. Moscow continued to implement ongoing aid projects0 million worth of credits still outstanding inillion Soviet program.oviets were still working atplants at yearend. notwithstanding Sadat's announced plan lo expel Soviet economicWork nearcd completion on the fourth blast furnace at the Helwan steel complex, bringing annual capacity closer loillion tons scheduled for the second stage. Expansion work was in full swing at Ihe Nag Hamitiadiplant, where first-stage0 tons) was reached

Several East European countries, notably East Germany and Romania, expanded economicwith Egypthe East Germansillionyear credits toelectrification projects. The agreement, which raises the East "German commit ment to0 million, was concluded during trade negotiations in October. Al that time Egypt promised to continue cotton deliveries to East Germany under their clearingrotocol for useillion of old aid in spurring agriculturalement plant and prefabricated housing plants, and doubling the capacityomanian-built caustic soda plant in Alexandria. Bucharest also may be preparing to beginoncession area assigned

China responded to Egypt's economicagainst the USSR by buying small amounts of cotton from7 crop, presumably for hard currency. Earlier in the year, the two sides hadour-year trade agreementrotocol calling0 million of tradeeking has not yet initiated work on the textile, pharmaceutical, and building materials projects announcedhey were to have been constructed with crcdils extended

Iran

Business Interests S'obilfza Political Vm

In spite of Ihe Shah's growing concern about Soviet activities in the Horn of Africa. Iran and the USSR maintained their upbeat commercial relationship of recent years7 wilh large new agreements.

oroeii NonrnArory Eaotprnerri Buyer

Iran signed new trade or economic agreements with most of its Communist partnerslready Moscow's largest Third Worldbuyer. Tehran was discussing furtherthat would run up to several billion dollars, includingecond trans-Iranian gas pipeline,otal cost of S3 billion;ew seaport on the Caspian coast; (c) two new bydropower projects; (d) uranium development;SOO million aluminum planl; andxpansion of highway, railroad, and port facilities.

6 the USSR and Iran had signedto triple the capacity at the Soviet-built Isfahan steel millillionear and to develop additional coal and iron ore sources to support the expansion. Iranian press reportsthat some of ihc equipment for these plants will carry deferred payment terms, although tbe full extent of Soviet assistance for the additional undertakings is not known. Moscow also began to install moreW of electrical capacity at Ah-az and Isfahan, fueled bygas, and is continuing work on other aid projects. The contribution of the Soviet aidto Iranian development accounts forercent of Iran's coal, iron ore, and cast iron output and forercent of Iran's steel capacity.

Soviet exports to Iran roseercent5 million worth of Soviet exports were heavily weighted by shipments of machinery and equipment under recent contracts. Soviet imports also rose, largely because of higher natural gas prices. Soviet gas imports, which have0 million annually, have paidarge share of Iran's increased machinery andpurchases from the USSR and for military equipmeni. Because gas sales are not large enough to finance the expanded level projected for Tehran's imports from the USSR. Iran may offer oil as repayment for the multibtllion dollar projects-Tehran's intcrcsi in financing projects in the Communist countries apparently has cooled. There was no actionulp and paper plant in the USSR, which Tehran had agreed to financeS. and Tehran has not followed0 million worth of cash loans io Eastern Europe with additional aid.

Easier. Europe Seeks Oi Supplies

Having been told by Moscow not to count on addiiional Soviet oil. East European couniries have been scrambling to arrange oil barter deals wiih Iran. Tehran has been reluctant, however, to commit itself lo long-term barter contracts, and only the following small agreements were concluded

Bulgaria increased its oilor which it paid hard currency.

Poland signed its first contract lo buy oilf crude.

East Germanyillion worth of railcars. which probably will be paid for in oil.

Negotiations on Czechoslovakia's requestong-term oil commitment were deferredwaiting Iranian review of its requirements for Czech machinery andew agreement for Polish construction of power, chemical, food, and mining facilities, as well as an assembly plant for agricultural aircraft, did not mention oil.

Romania has been Iran's largest Eastoil customer and is more active than other East European countries in Iranian development programs. Bucharest is involved in portat Bandar Shahpur and recently5 billion contract forailroad from Bandar Abbas to Kerman.

Iraq

Communist Support Mounts

ecord Soviet arms deliveries to Iraq, Moscow's heavier involvement in Iraqiplans, and the shipment0 million worth of Iraqi oil to the USSR attested to Ihe mutual benefits of the long-established Soviet-Iraqi relationship.

1

Transactions: Growth in Value and Sopnniicat"on

Moscow's big push7 was on arms deliveries under the SI billion accord signedardware deliveries rose byerceni0 million, one-fifth of total Soviet shipments to the Third World.

oviet and East Europeanadvisers were in Iraq7 to support the heavy inflow of new Soviet equipment. Most of the technicians were assigned to Iraq's Army, which is being expanded. Most ofraqi military personnel that went to the USSR for training were assigned to SAM familiarization courses.

Economiceflection ol Iraq's Growing Oil Income

Baghdad's ability to pay cash for equipment and services has given Moscow stiff competition from Western suppliers in bidding for Iraqi development contracts. Reacting to the threat of competition. Moscow moved7 to secure its participation in new projects and to implement thebillion in aid and commercial contracts signedajor project starts under these contracts included (a) the Haditha Dam andW power plant, (b) engineering studies for the al-Fallujah and Hindi. Dams,anal to link the Tigris River to the Tharthar storage lake for diverting waters to theRiver during periods of restricted flow, (d) reclamation0 hectares of land inwith the Tharthar project, and (e) the Kirkuk irrigation canal. Negotiations also were completed7 for building (a) the Mosul Dam, which willillion hectares of land andW of power; (b)W Darbendikhan power plant; and (c) two cement plants, each with an annual capacityillion tons.

Financial arrangements for these Sovietwhichombined price tag of nearly S3 billion, have not been announced. Most of this activity probably is under commercial contract and will be paid for in cash and oil.

raq has been the site of some of Moscow's most ambitious Third World projects.0 million aid program gave Iraq aoil industry; Soviet dam and powereventually will triple Iraq's installed electric capacity and will irrigateillionof land. The Nasiriya thermal plant,for completions the largestplant in the Middle East, while the Mosul Dam will be one of the largest in the world. The USSR was considering takingillion World Bank contract, which Iraq had abrogated, to construct grain silos These would be into existing Soviet commitments torrain storage projects.

East European activities have paralleled Soviet efforts in Iraq. Their trade, largely in industrial plant and equipment, is approaching the SI billion mark annually.tf Iraqi crude oil flowed to Eastern Europe on commercial account and as repayment forinimumast European personnel were employed on commercial and aid projects during the year, with most working in the oil sector or on irrigation projects.

Czechoslovakia began workillion contract to double capacity at the Basra oil refineryillion tons annually. Romania prepared to start constructionetroleum production wellulgarian-Iraqi joinl commission recommended further collaboration in agriculture, food processing, oil prospecting, and water and land development.

Progress on other East European development work was slow. Hungaryew contract for petroleum drilling in South Rumaylahthe completion of nine wells. Hungary also submitted proposals to exchange additionaldevelopment work in Iraq for oil; its present five-yearllows il to buy upf crude. Poland geared up for work on three irrigation projects, probably0 million credit agreement. Warsaw also began implementation of Iraq's first iron and sicel plantoint contractrench company.

Syr*

Returnlose Soviet Rekihonshrp

The Soviet-Syrian relationship was revitalized7 notwithstanding President Assad'srejectionong-term friendship treaty with the USSR. Syrian support for Moscow's role in the Middle East and opposition byto Egyptian and US peace initiatives helped repair the relationship, which hadinn the aftermath of Syria's intervention in Lebanon.

Economic Aid May Inereose

President Assad's visit to Moscow in April brought agreement to speed up Soviet projects underong list of new projects was discussed for which the Soviets agreed to accept oil asew framework agreement was signed7 to expandcooperation even further.

7 the Euphrates Dam. Moscow's show project in Syria, moved rapidly towardof the first stage with the arrival of ihe last three lurbines forW power plant. The S2 billion project, which hasSof Soviet equipment under credits, willmuch of Syria's electric power when it reaches capacity operationventually it also willillion hectares or irrigated land. The Soviets began surveys7 on andam at al-Khabir and onhcctare Meskcne irrigation project.

Soviet technicians also expanded petroleum explorationillion development protocol signedhrough which ihe USSR hopes to raise Syrian output toillionhe present level is aboutillionhe USSR has developed all of Syria's petroleum production facilities and receivesons of) from Syrian fields.

East European contractors are expected toajor role in Syria's comprehensive water resource development plans, which are being drawn up with the aid of Soviet planners and encompass one-fourth of all Syrian territory. East European countries (notably Bulgaria)have been involved in reclamation related to the Euphrates Dam.

Syria, the largesl LDC recipient of Eastassistance after Egypt, has more0 million of economic aid commitments from the countries of Eastern Europe. These outstrippledges5 million.0 million of pledges make ii by far ihc most important donor in Eastern Europe; Bucharestpecialists in Syria, employed in oil development, geological prospecting, phosphate development, agriculture, and transportation Despite disagreements over construction andschedules,b/d) petroleum refinery at Banias'andton superphosphate complex at Horns-Romania's largesl projects in the Third World-are scheduled for completion

CzechoslovakiaW power plant to Syria7 and began deliveries of equipmeni0 million lire plant. East Germanyillion of contracts for rural electrification, started workrain silo, and apparently bidailroad construction project.

Turkey

Reports from the meetingoint Soviet-Turkish committee late in December suggest that the0 million0 million in Soviet aid to be providedgreement has been raised2 billion. New projects mentioned for Soviet financing include (a) an iron ore plant at Hasan Celebi,illion-ton refinery on the Black Sea,teel industry training center at Iskendcrun,am and hydropower plant,ydrogen peroxide planl, andesticides plant. The iwo sides also agreed io go ahead with feasibility studies for expanding the Iskendcrun steel plant from itsillion tonsillion loos, to double the capacity of ihe Aliaga refinery toillion) annually, and ioowcrline from the USSR for the

1:1

importillion kWh of electricity annually (equivalent to the outputW powerhe powerline follows an earlier Soviet agreement to supply power to Turkey to alleviate energy shortages caused by mechanical failures at existing facilities and the lag in completing new power plants. At the same time, planning will be accelerated for constructing two thermal power plants under Soviet credits. Moscow also will provide assistance for expanding the Seyde-schir aluminum plantons of annual capacity. East European countries also wereto assist Turkey in solving its power problems:

Czechoslovakia offered thermal plants with an installed capacityW.

Poland0 million contract for constructing andW power station, possibly on deferred

Hungary signed its first cooperationwith Turkey, alongillion contract for power plant equipment.

Among East European countries,led the way in economic initiatives in Turkey with an agreement in principle lo provide up toillion in supplier-type credits under aagreement signedrojectsin addition to the power facilitiesachine tool plantignite-fired fertilizer plant While the terms of the agreement were not announced,illion contract for the machine tool plant allowedears for repayment.

Other Middle Eastern Ceunlriei

Bulgaria, East Germany, and Poland signed their first economic agreements with Jordan. which provided for their participation incurrent five-year. Under earlier general agreements, Hungary agreed lo furnish assistance for agricultural, power, and port projects, and the USSRillion contract for rural electrification.

illion missile purchase from the USSR in April marked Moscow's firstof the military market in the conservative

Persian Gulf states. Initial shipments arrived in Kuwait late in July.

Kuwait, also seeking to improve its nonaligncd image in the economic sphere,ong-term economic cooperation agreement with China. Peking probably agreed to provide equipment and services for land reclamation, studied earlierhinese technical delegation. Hungary, one of the most active Communist contractors in Kuwait,illion commercial bid to installower stations. This follows two years of active Hungarian bidding on construction projects and previous contracts for transformers, buses,ehicle assembly plant. Hungary and Kuwait also areradeto barter oil for Hungarian industrial products.

Negotiations on Kuwait's largest Communistpetrochemical complex inlimped to the endecond year. Kuwait would provideercent of the financing for theillion project and sellf crude oil for the facility.

At yearend, South Yemen still had not granted Moscow's request for unlimited use of airport, port, and naval base facilities at Aden. Earlier in the year, the USSR had6 million contract2 line of credit for runway construction and improvements at the airport. In the Horn conflict. South Yemen had given the Soviets use of air and sea facilities forequipment and personnel and hadSoviet equipment from its own inventories. Soviet influence in South Yemen has grown throughyear military relationship.

The USSR willf crude oil to Aden's only refinery, which supplies the Soviet fleet in the Red Sea and Indian Ocean with petroleum products. Despite poor progress on economic aid projects, such as the Aden power plant, more Soviet assistance for oilfisheries, and agricultural development was promised South Yemen.

China,illion economicprogram has had more economic results than Moscow's effort, completed surfacingilomctcr road from Ma'in to Mahfad under

2 agreement. The new road opens up area* previously inaccessible lo vehicle traffic. Chinese technicians also began workish-processing complex in Aden.

South Asia Summary

South Asian countries, with whom the USSR had forged its earliest economic lies in the Third World, continue among Moscow's leadingand military aid clients For more thanears India and Afghanistan have relied on Moscow for equipment and technology for their development efforts as well as large-scale support for their military establishments.

he USSR provided the new Indian Government with New Delhi's first major Soviet economic development credit in moreecade, togetherililary package.0 million in economic assistance carried the most favorable terms the USSR has ever offered India and pushed total Communist economic aid commitments to Indiaillion.

The effect of Peking's SI billion economic and mililary program inlargest in the Third World -could be eroded withturn io the Wesl for military supplies. For the lime being. Pakistan's suspicions of Soviet tics with Afghanistan and India, as well as strong pro-Chinese sentiment among Pakistan's ruling elite, should preserve China's political influence. Bangladesh received its first Chinese economic assistance since independence, as well as Chinese MIG aircraftift. The military relationship wiih Dacca beganhen China provided spares for Soviet equipment that was inoperable because of lagging Soviet spares deliveries.and India signed their first trade agreement in more than two decades, and Peking made low-level overtures toward normalizing diplomatic relations.

Mokow's First Aid Chen)

In theears since Moscow's first aidto Afghanistan, the Soviet presence has become pervasive. Despite Kabul's desire toitself with nonaligned couniries, tbe USSR continues as Afghanistan's major source ofand mililary assistance, an importantfor cultural and educationalprograms, and its principal trading partner. Moscow's deep interest in Afghanistan stems from the realities of geopolitics, namelylocation on the Soviet border and its nearness to two areas of Sovici interest, the Indian subcontinent and ihe Middle East.

Soviet security interests have prompted aaid policy unique to Afghanistan:

Grantsarger share of Soviet aid lo Afghanistan than to any other Third World country.

Repayment terms for credits areliberal.

Debls have been rescheduled frequently.

Moscow provides commodities under credit to cover most local economic projectoncession rarely extended to olher Soviet aid recipients.

A Soviet-Built Military Establishment

he Soviets havef Afghanistan's military goods. Deliveries totaling more0 million have included fighter aircraft, medium tanks, surface-to-air missiles, helicopters, and armored vehicles.

Moscow continues to bear almost complete responsibility for support and maintenance of Afghan weapons systems despite more than two decades of Soviet technical assistance andThe number of Soviet military personnel in Afghanistan has not changedhenussians were present to carry out maintenance, assembly, and training functions. In addition, Afghans were being trained in the USSR at the endringing the number trained6.

Moscow: The Dominant Economic Partner

Despite US assistance of0 million and Afghanistan's recent success in attracting0 million of OPEC pledges

million of which has beenhe USSR continues as Kabul's single most important source of economic aid and its principal trading5 million credit, extended5 for Kabul's current Seven-Year0. accounts for one-third of the3 billion commitment to Kabul and is Moscow's largest single commitment to Afghanistan.

he USSRillion Tram5 agreement for commodities to finance local costsumber of projects now under study. Work is expected to begin soonas desulfurization plant, power and irrigationand several bakeries under5 million credit. Moscow also agreed7 toillion hospitalroject that the United States had turned down.

The Sovietwhich Moscow has already0 million ofabout one-half of the import require menu for projects under Afghanistan's four five-year plans. Two-thirds of Afghanistan's roads and electric power capacity have been built wilh this assistance. The USSR has constructed major airfields, developed an extensive powernetwork, and put0 hectares of land into cultivation. Moscow also has built several small industrial plants and developed Afghanistan's natural gas industry, which now provides the USSRillion cubic meters ofearoviet-built pipeline. According to Soviet figures. Soviet-built plants accounted forerceni of Afghanistan'soutput.

No diminution of tbe Soviet economicis likely in ihe near futureoviet technicians are presently employed in mineral and oil and gas exploration; fertilizer production; and power, irrigation, and transportationWc expect thai additional Soviet technical specialists will be requested as work progresses on two power projects and0 million copper smelting complex, now on the drawing boards, gets under way.

The PRC provided its first economic aid to Bangladeshf credits for flood control and irrigation 'fl textile plants,ton fertilizer plant for which engineering studies are already under way. August contracts for electrical and agricul-lural equipment probably come under iheChina also0 tons of wheat under credithina's previous aid to Bangladesh (when il was the easicrn wing of Pakistan)illion for an ordnance plant at Dacca and commodities.

0 million Soviet program introduced since Bangladesh independence has focused on ihe development of electric power, gas, and oil output. Deliveries for the Ghorosal power plant have been finished, and the electrical machinery plant at Chittagong is nearing completion.gas prospecting will be initiated soon with late-model Soviet drilling equipmentew agreement. In contrast, projects underillion line of credit have not been initiated, and drawdowns on Soviet credits have been sluggish. In fact, wheat shipments0 tons to thetwo installments on3 Soviet wheatet resource outflow

East European activity last year was confined to East German and Hungarian contracts, eachillion of railway equipment under existing credits.

Bangladesh has relied increasingly on non-Communist donors for most of its economic aid.or example, disbursements fromcountries and multilateral agencies5 million. This compares with average annual Communist flowsillion, mostly from the USSR.

InoSo

Reaffirming the Indo-Soviel Friendship Treoty

Prime Minister Desai has recognized that Indian interests would be best served through close ties with the USSR despite his desire to move his country backonaligncd position. The military supply connection with the USSR has become the keystone in the Indo-Soviet relationship. Since thendia has bought almostillion of Soviet hardware and military manufacturing facilities. In the past few

illion0 million of aid still not drawn from old credits was also tentatively allocated for improving the technology in India's coal and steelalled for Soviet technical assistance to help increase output at existing coal and iron mines. The protocol also called for possible development of the Singrauli, Raniganji, and Jayant mines, all of which has been under discussion for the past two years. Cooperation was further extended in protocols for (a) expanding capacity at theBokaro steel mill, (b) S5 million worth of equipmeni to help develop copper mining, and (c) lwo training schools for the petroleum industry.

India and the USSR also are proceeding with plans to use Indian equipment for Soviet-built projects in third countries. Moscow hopes the arrangement will (a) boost Indian output in Soviet-built plants, which now operate below capacity, (b) relieve periodic strains on Soviet producers, and (c) eventually lead to integrating some Indian production into the world socialist economy. New Delhi already has delivered coke oven batteriesoviet-built steel plant in Bulgaria; similar equipment will go to EgyptS for the Helwan planl.

Soviet-Indian commercial lies vsere broadenedour-year agreement6 to5 million barrels of Soviet-owned crude oil for Indian steel and other products Sovici-Indian trade8 is expected to surpass the SI7 level by0 million because of early paymentarge part ofillion tons of wheat still owed on3 Soviet wheat loan.

East European countries followed Moscow's lead7 by expanding their assistance for developing India's public sector. Hungary agreed in June to more than double the capacity of the Hungarian-built aluminum plant at Korbaons annually. Budapest also began prospectingetroleum concession area in Himachal Pradesh and signed smaller contracts io supply equipment for four clothing factories, whose cost will be repaid in output from the plants. Warsaw offered fishing and cargo ships and agricultural equipmeni and is considering the import of new industrial iiems from India. Romania discussed expanded cooperation in petrochemistry, fertilizer production, andand offshore petroleum drilling. At the same time, Bucharest worked on correcting faulty design of the Romanian-built Haldiawhere lubricating oil production isat less than one-fourth of capacity.

Most Easl European countries also havethird-country ventures with New Delhi, similar to those under way with Moscow. Poland may be nearing agreement on Indian-Polish cooperation in constructing sugar mills in ihe Persian Gulf states, where India has builiarge contracting business.

Paklston

Pakistan views China as its most dependable supporter among the major powers and as an effective counterweight to Soviet pressures.close relationship wiih Pakistan springsI billion assistance program, which has mode Islamabad China's largest Third World recipient of both economic and militaryEven ihough ihe USSR has provided more

economic aid, three-fiflhl of China's assistance is provided as outright grants, whereas all Soviet aid must be repaid. Moscow has had to contend with Pakistani suspicions of the close Soviet tics with Afghanistan and India, as well as strong pro-Chinese and pro-Western biases among Pakistan's ruling elite.

Stotic Economy Retotiom

Pakistan has traditionally received moreassistance from non-Communist than from Communist countries. Recent largefrom OPEC nations have accentuated the dominance of non-Communist countries inecortornic development;aid disbursements comprisedercent of Islamabad's total aid receipts.

Among the Communisi aid programs, theillion Chinese economic assistancehas ranked second to Moscow's in money terms because of large Soviet creditsteel mill. On the other hand. China's technicalhas outstripped Moscow's, with more0 Chinese Uborers working on China's most important project inKara-koram highway tbat links Pakistan with China through the Himalayan town of Gilgit. The road, which is being built at an estimated cost0 million to the Chinese, was nearing completion al7 and work continued on textiletadium,ertilizer plant. InChinese geologists announced theof iron ore reserves sufficient to supply the two small iron and steel plants Peking plans to build0 credit.

Despite Pakistan's close relationship with the PRC and its suspicions of Soviet intentions. Islamabad has recognized the constraintson China's foreign aid capabilities by its own lack of development. In an important policy shiftslamabad turned to Moscow for assistance in building the steel mill at Karachi,5 million of credits, which Peking could not provide. Byboutof the equipment forillion-iori plant had been delivered, anddate for full production at the complex appeared reasonable. In December. Pakistanplans for signing purchase contracts with Free World coal and iron ore suppliers for firing tbe first blast furnace

East European countriesore active interest in Pakistani development projects

Romaniaillion in creditsement plant, probably underredit agreement, and completed expansion of the Karachi refinery.

Poland offered to setractor assembly plant, following tRe rescheduling ofsmall debt.

East Germanyspindlc cotton textile mill4 contract.

Other South Aiior. Ce-ntrie.

Soviet consideration of assistance for several light industrial projects in Nepal came to naught last year, and only0 gift for road-building machinery was extended. Work had been completed on all Soviet projectsnd no new projects were initiated. Despitedifficulties wilh local subcontractors, Peking finished3 million ring road in March; work has not begun onillion Pokhara-Surkhet road, which China promised

Communist initiatives toward Sri Lanka fell offs Colombo tried to work oui financial problems wilh IMF assistance. China and the USSR, however, maintained theirat irrigation and hydropowcr sites, and China signed its sixth five-year trade0 million trade protocol8 with China incorporated the traditional rice-rubber barter arrangement at recent0 tons of Chinese rice0 tons of Sri Lankan rubber).

Original document.

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