SOVIET ATTITUDES TOWARD INTERNATIONAL COMMODITY AND FINANCIAL ORGANIZATIONS

Created: 6/7/1977

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Attitudes Toward International Conapodity end Financial Organizations

Agreements

The Soviets have notwith few exceptionspenly Joined commodity cartels, choosing instead to remain on theaa an interested observer. The actiona of the cartels have been generally beneficial to Moscow, which has been able to defend ita economic interests without direct involvement. In their own marketing actions, tha Soviets usually have bean careful not to disrupt the cartela by cutting pricea or by making other destabilizing moves.

The Soviets have applauded tha potential (other than OPEC) power of the commodity cartels. Viewing tha situationtruggle between poor, underdeveloped, long-exploited countriea on tha one hand, and imperialiat-monopoliat-capitalist countries on the other, the Soviets have atrongly defended tha cartels' poaaible future auccesa in helping Improve the terms of trade for LDCs. The steep price increases are justified, the Sovieta say,nflation in thaaat economic exploitation of LDCs by Western firms,he LDCs' queat for economic Independence.

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Soviet attitudes toward OPEC, by far the most important and successful of tha cartels, are typical. Tha Sovieta focus attention on the profita earned by the Western oil companiea before the OPEC takeover and indicate that the prlci

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inc.-oases3 and sine* werexlong overdue. The OPEC countrlei, according to the Soviets, have tha right to control their oil resources by setting prices, withholding production, and declaring embargoes. Moreover, this control should be used for political purposes.

Although the Soviets are not members of OPEC, the oil price increases3 have provided the USSRuge hard currency windfall. Soviet oil contracts with the West are priced in terms of OPEC oil, and tlie Soviets follow suit whenever OPEC raises prices.* The Soviets suffered large hard currency trade deficits53 billion andillion, respectivelyand these deficits would have been possiblyillion higher without the added revenues from oil sales to the Heat. Hard currency oil earnings rose0 million2 to5 billion

Inhe USSR approached several Middle East oil exporters about the formationew oil cartel whose membership would include several hard-line OPEC members, the East European countries, and the Soviet Onion. The proposal was apparently madeow-level Soviet official and was rejected by the OPEC countries. Moscow's motivationand degree of seriousnessare not clean the closeness of OPEC and Soviet interests argues against Soviet attempts to form

rival organization.

* Thc latest prica increase, with Saudi crude going upnd other,ispute between the Soviets andWestern buyer. The Soviets, but the buyer insistedince the contract was tied to the price of Saudi light crude. ompromise increase., .percent was finally

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Policies of other cartelsthose for iron orefor examplehave had leas dramatic impacthey have not been able to dominateaa well as OPEC,heir commodities aresignificant Soviet

The most important direct Soviet participation in an international Boilers' group ia ita agreement with the British firm, de Beers, which buyaercent of the world's uncut diaroonda. Under the agreement, the Soviets sell all their uncut diamonds to de Beers. The arrangement allows de Beers to maintain itanopoly on the world diamond market while both parties are able to avoid competing with each other.

Some cartels have an impact on the USSR as an importer rather thanxporter. For example, although the USSR is one of the world's leading producers of tin, ita membership in the International Tin Council is based on the fact that it alsoubstantial importer of tin. The Soviets have also become substantial importera of bauxite from Guinea, and are unhappy about the increased price of bauxite that has resulted from the International Bauxite Agreement. Financial Agreements

The Soviets are not membera of the IMF nor do they participate directly in any other Weatern international monetary agreement or organization. Moscow took part in discussions which culminated in the Bretton Woods Agreement6

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establishing the IMF, the World Bank, and the postwar exchange rate system. The Sovieta, at the time embarkingeriod of economic autarky, declined to sign the agreement. They objected to: the requirement that members eventually tradeultilateral basis with convertible currenciesf paymentontribution to the IMF; and the publication of information on finances, gold reserves, and balance of payments.

Although Moscow has abandoned autarky, expanded East-Westnd become activeorrower in international financial markets andeller in trie gold market, the USSR still ahows little interest in joining international monetary organizations. The reasons are much the same as those which made membership unappealing three decades ago. Much of Soviet trade is still bilateral in nature and settled by clearing accounts in contradiction of the spirit of Bretton Woods. Memberahip in the IMFtwouldarge Soviet contribution. The Soviets are still loath to publish financial

data; Weatern bankers1 requests -for balance of paymenta and

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reservea data to evaluate Soviet creditworthineas have been

rejected. Release of this information is apparently a

violation of Soviet law. Moreover, the Soviets perceive the

IMFeatern-dominated institution in which they would

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have little effective power. The chief advantage to member-

ship would ba Soviel access to IMF lending facilities, but theae would notignificant source of funds for Moscow.

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Moscow has attempted to create its own international monetary system within CEMA. nternational Bank for Economic Cooperation <IBEC) and the International

Investment Bank (IIB) roughly parallel' the IMF and World

'. "i Bank, respectively. IBEC was created3 to serve as

a clearing house for intra-CEMA trade to provide trade

financing for members. IIB was established1 to

finance investment projects undertaken by member countries

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Moscow's View of the North-south Dialogue2

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The Soviet View of the North-South Dialogue

Moscow sees the North-South dialogueove "to restructure the entire system of international economic relations inherited from colonialism". The USSR ao far has chosen to remain on the sidelines while shoutingto the LDCs and there is no indication that thia will change. If the Sovieta, however, are pressed into making financial contributions to the LDCs because of the dialogue

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the aid would probably be modest at bast.

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Mobcow believes the LDCs are not seekinglace under the sun within the world capitalist economic system" but are pushingew international economic order. the USSR and other communist countries have allied themselves with the LDCs. According to Moacow, the priorities in the North-South struggle arei

Curbing the "unbridled activities" ofultinational corporations by giving LDCs complete control over foreign capital investment and the export of profits and j- dividends. Eliminating discriminatory trade barriers.Adopting measures totable and sufficient level of export earnings for developing countriesparticularly by

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the indexing of raw material prices to the pricen of finished products and byeneral fund to finance buffer stocks.

Increasing the transfer of Western technology to the LDCs.

The Third World can expect little in the way of financial aid from the USSR because of the North-South dialogue. The Soviets claim than the socialist countries are "obviously not responsible for the colonialist plunder of the resources of the developingonsequently they do not share in the common guilt of the capitalist countries. the many years of cooperation between the USSR and other Communist countries and the Third World have shown "the effectiveness of the current practice of their economic links in helping the developing states overcome their In regard to foreign trade, the less developed countries also can expect little from the USSR. Moscow has admitted tha. it expects Soviet trade with the LDCs to continue growinglower pace than trade with either the West or other socialist countries.

If the Soviets can be coerced into,contributing to the

LDCsan outside possibility they most likely would

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press for several conditions. Moscow would favor bilateral

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aid rather than the multilateral approach adopted by the industrial nations, the Soviets,do not want their contributions overshadowed by larger Western aid. The financial help

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probably would be in the form of credits rather than grants since the former is preferred by Moscow. In addition the Soviets would resist attempts to link the amount of aid to the USSR's nationalthe scheme currently promoted by the LDCs. Finally, the Soviets have expressed objections to the creation of buffer stocks based on the contributors share of total world tradei Moscow believes the USSR's trade with the Socialist countries should be excluded from the data base.

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; PPG; CPS/St/PC

The attached document waa forwarded to Jenonne Walker, Policy Planning Staff, Department of State, via Deputy.

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Original document.

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