DIFFICULTIES ENCOUNTERED BY LESS DEVELOPED COUNTRIES IN THEIR ECONOMIC RELATION

Created: 2/23/1972

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DlrKl CUT/PIESUY. LEGS"DEVBLOPED COUNTRIES (TPCs) IN THEIR ECONOMIC RELATIONS WITH TIE SOVIET UNION

As the less developed countries have expanded economicwith tbe USSR, they have encountered numerous difficulties Inherent in Soviet economic aid programs. They often have found tha USSR to be an uncertain trading partner, aaay of its goods to be of poor quality, and spare parts for Soriet mechanicaldifficult to obtain. Recipient* of Soviet economicfrequently complain about the delays in.project implementation, tbe use of dated technology, tbe high prices for the materials, and equipment, and the errors In planning and execution of projects.

I. Soviet Trade with the Less Developed Countries

A. Nonfulfillment of Trade Ap;rectacnts

For the LDCs, the Soviet Union often has proven toporadic end uncertain trading partner. Quotas contained in bllatoral agreements frequently are not fulfilled, and trade often fluctuates from year to year. Nor are individual trade contracts iaraine. After protracted haggling over prices, the USSR finally backed out8 commitment to0 railway cars from India with deliveries to begin (Hindu,) On the other side of tbe9 Soviet trade agreement withcalled for an Afghani surplus to be maintained to facilitate debt repayment but it never materialized because tbe Soviets did not Import enough.

Where imbalances -in trado with-the USSR-exisfcy-tarry countries eceive non-convertible ruble credits. If tbe trading partner can-ot find enough suitable Soviet goods at reasonable prices, it is placed in too position of actually financing the trade imbalance with an interest-free trade credit.

Despite promises to increase the proportion of manufactures in imports from LDCs, for most countries the USSRaw materials importer. Although the share of manufactures from LDCs has risenercent of total Imports,as come from Egypt and India aa repayment of aid debts.

The following trade data show the erratic nature of Soviet trade.

cia historical review program release as9

1- 5toor packaging and handling frequently results in shipments arriving damaged; improper transport scheduling occasionally results in too rapid delivery and accumulation and spoilage on the Importing

Suchthe case vitha recentwith Ecuador, vhere one-fourthoviet Entrant of cement arrived poorly packaged and much Ecuador estimates thatOO on this banana-cement barter deal. (FB1B,1

2. hipmentertilizer forstate farms in Iraq not only was badlyarrived without notice, could not be stored,caked and unusable. Moreover, theer ton compared

^ stiatUr fo**ilizer from other

3* T"fter they arrived,utoviet jeeps bought by Colombia had broken down and

teaa servicG- )f one large purchase of Soviet Sectors was inoperativehort time after they7 6 D0D, m-

w^hcondeaEe* ons

h arrivcdo^try O)

rceS reported that Pakistan encountered

^rade transaction with the USSR to several cftSea lofcter8

be issued twice before the goods arrived, torcover! the quality of Soviet hand tools obtained in thiswere considered to be Inferior to the local5y^ produced tools. (Karachi)

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Dooestic soles 'agents for Soviet mechanical equipment frequently complain about the difficulty io obtaining spare parts for such equipment. Businessmen in Somalia, Mali, and Iran, for example, have complained about tho financial losses such delays cause. yrian agent for Soviet tractors cancelled hisafter two years because the spare parts problem had caused his business to decline. .

In, Cameroon reported' that the cement market was in chaos because deliveries from the USSR were not arriving on time and imports from other countries would have to be authorized at substantial losses.

1U)

order to pay for arms "obtained frcm the USSRcivil war, Nigeria was compelled to sell. icflj below tho,

9- Ghana requested international oil companies to aupp"Ly four cargoes of crude on which the USSR had defaulted9 contract. It was assumed that the dofault reflected growing Soviet-Ghanian political frictions following tbe iinpouDdingoviet trawler. (State, Paris,)

10. An Indian representative employed at the Soviet-built tire-factory in Ceylon reported that.the Sovietso cost-analysis system and set the prices of their the catalogs of competing firms.)

"* Soviet Economic Md to nred Countries A- Political Motivation

0 Projoct an inage oforecipient W.nt' lity'USSR employs*fathering its geopJuticaf

e growth of socialism in recipient JbTSSfVr1 rf/Btab^^Political cli.Se for ^actlTitl^ of domestic Coexists. In answer to an Iranian

JIOnS Cr-Cralne Sovietaid tooviet official summed up Moscow's policy vhen he stated:

It is the Soviet plan to cultivate thewith foreign aid. In Iranountries, Soviet aid will help speed the economic and social changes necessary to create the proper conditions for the establishment of socialism. This trend has already accelerated in Iran, cannot now be stopped, and must be encouraged by Soviet aid for the sake of the Coinmuniat movement.

c^cveDent ofW range goal tnrough have been coSint

on almost every aspect of Soviot aid activity. The USSR has

rpvcsicrof"cn

B* .Questionable Kcopcmic Pri orlfci

i..n wUff ^eloped countries not only have cause to question

SRidsoSess

heirecona[nic requirements. Some^ hhaVe Cf"ltrIbUtedt0ational

h^'JSS DOt ^UBeindigenous resources^ have created repayment problems. The USSR readily mlstTLn strict projects which can be completed rapidly and ofSr cScT

10 economic reiuireaent. of the recipient,jts, ve'rf operallnB

ons androw.ng liability to tho Indian economy. Failurea have centered around faulty planning, inflexibleand delays in deliveries and completion dates. In aome cases, tho completed project's output far exceeds Indian needs and is not competitive in worldn otherscosts far outstrip sales prices. (Tehran Journal,O, U; London Times,)

C. High Cost of Soviet Technical Assistance

Soviet technical assistance must be paid for and usually is charged to the Soviet project credit, whereas such aid generally is providedrant under Western aid programs. The costs of Soviet services tend to be high and in many countries have accounted for 2jf,-lo$ of total Soviet expendituresroject. Kalian officials, for example, bave stated that for many Soviet projects the greater part of aid funds is being spent for technical The total coateological survey undertaken by the USSR in Ghana vas estimated at7 million, of whichillion was spent to cover the costs of Soviet technicians.

The high cost of Soviet technical services is due to the numerous items which must be covered and the inordinately large number of Soviet technicians which must be employed. Included in the foreign exchange portion chargeable to the Soviet credits are salaries, round-trip plane fare (oftennnual leave, and life Insurance premiums.echnician's family accompanies him, their fares must be paid, ln additionamily transfer allowance. The host country also ls responsible for most of the local maintenance'costs of Soviet technicians. Those include free medical care, office space, official transportation within the country, and furnished quarters for the technician and his

The narrow functional specialization of Soviet technicians (an outgrowth of the specialized Comcnunist educational system) alsoost-raising factor. Sevoral Soviet technicians sometimes are required to perform the work of ono Western technician. many more technicians are requiredoviet project than would be employedimilar Western aid projoct. The problem la aggravated by Soviet unwillingness to accept fullresponsibilityroject. Soviet organizations are responsible for only conducting technical surveys, for coordinating work of all technicians employedrojoct, for directing basic construction activities, and for installing machinery and equipment. The aid-receiving country usually Is responsible for all related work involving the use of domestic goods and services and foroverall construction activities. This often requires administrative experienceecipient country may not possess and for which aid was originally sought.

Hany recipients of Soviet aid have complained of the poor performance of Soviet machinery and equipment and the frequent lack of spare parts. Agricultural machinery and road construction equipment have been singled out as being particularly unadaptable to conditions in LDCs. Algeria, India, Pakistan, Egypt, and Iraq periodically have complained about tbe inefficient methods and outmoded equipment used by the Soviets inil prospecting activities, aa well as about the long periods required to carry out surveys. Food processing Installations have fallen victim to Soviet miscalculations of rav materials supply and markets for tho output.

Tne Soviet aid performance has probably been poorest in Indonesia. Despite more0 million owed by Djakarta to the USSR for economicingle Soviet industrial project has been completed. Thus, Indonesia is paying for equipment delivered but not installed and ln various states of disrepair. The following table details some problems encountered by other' recipients of Soviot aid. ,

Steel complex atAlgerians have expressed great disappointment with the Soviet-

assisted'portion ofadjar steel works, also receivingid from West Germany and Trance. Although the Soviet facilities were to be completedhey still vrere nothe endest German and French firms have completed their portions of the project. The Algerians Cite theof Soviet state organizationsajor factor in the delay.

dam andproject

geologists did not study substrata of floor ofand constant seepage is severe. While itorings to be madeam of this size,made onlyest borings. During construction, incf flooding, Soviet technicians released water fronandarge area of crops. The remaining cropsarea died in the ensuing drought, es not enough water wasthe dam for irrigation. Soviets reportedlystimate rainfall, which is currently insufficient to filllake. Experts report that although the dam itself isit is unlikely tha- the lcrge scale irrigationever be carried cut. )

Taunggyi

plagued sy equipment failures. In addition, it is inaccessible to very ill cr injured patients, being located al topteep hill.

authoritiesoviet offer to provide aand repair plant because cf the poor performance ofpreviously delivered by the USSR. (Cf ''. 16

/ *

Iron and steel works, Kcaogo-aa-Cruwala

The cosis for the first stage of the four-stage project exceeded Soviet estimates of the cost of the total projectnd vere hOC% higher than for comparable complete installations in Israel and New Zealand. Its location is far from available iron ore deposits; water supply and transportation facilities are nonexistent. Ihe project has experienced delays in the delivery of working drawings anti machinery and equipment. The Soviets accused of misinterpretation of data on ground geology when the foundations for seise equipment installations sank. Although Ceylon hasO tons of scrap iron available annually, Soviet plons forirst stage construction, whicholling sail, did not envision constructionlast furnace to convert the scrap for use ln the mill. Therefore, Ceylcn must export scrap and import iron ballets until the last stage of the mill is complete. Production, which is well in excess of Ceylon's needs, is not competitive in world markets. (Ceylor. Dally News, l8'J)

Petroleumgricultural aid projects

InEgyptian authroitles reportedly requested the USSRoil drilling activities ina and Baharlya Egyptian officials complained of outdated equipmentdesert conditions. The Egyptians also experiencedworking with Soviet technicians because of their J Egyptians also

charodiiteabuomplete flop." is plagued with continuing repair problems, sndcontinue to train the Egyptians in land reclamationore considered unsuitable.

WBt

ETHIOPIA

Oil refinery atccnnploir, that the site at Assab waa poorly chosen because

lt had no access to crude oil soirees, co rail facilities for Inland distribution, required construction of en-nile aqueduct to bring in vater supplies. Froa the very start the Soviet blueprints needed correction and modification and the snags have not been eliminated to this time. The plant vas scheduled to go onstreamI* and was finally inauguratedy this time Ethiopian petroleum products requlreffi.en.tsi had multiplied and the capacity of the plant vaa Inadequate. Too many technicians were required to run the plant, and operation costs were prohibitively high. In addition, construction costs, originally estimatedillion, nearly doubled. Storage facilities have been inadequate resulting in periodic production cutbacks. Transportation costs are high and Ethiopia continues to be forced to import petroleum products. The quality of production is described as third rati, and consumers have had to codify equipment to use the oil. Inthe Ethlopiana requested tho'USSR to double theof the plantut no agreement has been reached to date. (March of the Nation. Bcobay,)

INDIA

fficials of the Indian Oil and natural Gas Commission

reportedly vere reassessing Soviet drilling operations ln theCambay. The primary complaint was that the Soviets wereand vera having trouble supplying theso felt that the Soviet advisors lackedand experience, and that the oil field equipmentBlow and responsible for renTi*"ous breakdowns,wore avMinhi*.

.

-.

Superphosphate plant, Tjilatjap

Steel mill, Tjilegon

Road construction, Borneo

Mechanized fara

Although someaiumhad heen delivered,vas abandoned6 vith constraction halfstatus of the plant Is still uncertain, but1 acarriedurvey of equipment for this plant andaill'at Tjilegon. If it is decided to complete the- probably vould require importedor theirno deposits of sulphur or phosphate in sufficient quantity havein Indonesia. The previous decision to go ahead vith tvas taken before geological surveys' had; bsc,November

Project abandoned0 vlth construction only one-fourthvalue of equipment received at the siteicomplaints vere recorded even before vork vasths mill. It was located poorly, kg miles from vater supply,prospecting failed-to yield evidence ofiron ore deposits. Equipment reportedly vaa fromSiberian plant and deliveries'vere erratic. require imported wd cost of steel vould beas)

Onlyiles of road were completed, cost of which has deteriorated because of Improper drainage. Indonesians constantly complained of breakdowns,of Soviet machinery and equipflent for this typo of (Sams as below)

*

The failure of the completed mechanized farm is tied to theof Soviet roadbullding techniques, as the installation could be reached onJv hvshnve. (New YorX Times, j

nPCWESiA (oat'd)

Atoaic reactor, Serpcr.g

Research reactor, Gadjah Mad* University

Ah and coed by tha Sovietsith Boat of tha equipment delivered.ndonesia cancelled plana for tbe project because equi pesat is ln advanced state of deterioration. (Stats, Djakarta,OU)

Facility is not operating because of lack of atoaic fuel. Repeated requests to tho USSR for fuel have been ignored. Fuel originally provided va* mWHftv.for onlysijc months, operation

Aid difficulties

An Iraqi petroleua official has roundly condemned all aspects of Soviet aid to Iraq, and olaima tbat Iraqi-Soviet agreements are concluded for purely political reasons. Following are soae of thencountered:

Soviets could not cost projects Soviet deliveries are late

Soviet plants are copied rather than developed and, therefore,

Vaatarn expartlss ls always needed Soviet (plants coatoercent more Language difficulties exacerbate technical problems./

Natural gas pipeline

Soviet construct lor. engineers working on the Iranian-Soviet gas pipeline reportedly encountered construction problem* they could not' handle and suggested subcontracting portions of ths pipeline to USowever, no agreements were concluded because the Soviets would!pay only ln rubles or equipment. The Soviets proposed to bringmployees to stsff two pipeline gangs, where tha Western requirement wouldersonnel. Tne Iranians also expressed dismay at the)antiquated compressors the Soviets used on theonroarlM them to typesn the Ws'sttars ago.

Kydroelactrlc plant,this project was located In aa area where seasonal fluctuation

ln water flow are mat, the plant can operate at capacity for only four conear, the rest of tbe time it is cut back to less than two-thirds of capacity. In addition, experts stats that the dam is too narrow, (Report by Marshall, U)

Sugar mill,aeveral years, tha mill operated at% of installed capa-

city because of insufficient cane supply. Local demand for refined sugar vac overeitinatad. uring the first year of operation. ,)

Cigarette factory,plant was dealgned originally to reduce substantially Xepoieie

Imports of cigarettes from India, but it depends on tobacco import! for its operation. Initially operated atf capacity because of lack of tobacco. ,OO)

Simra-Janakpurccarplated1 after ten years of construction.

SOMALIA

Various aidofficials are dlicayed atillion loss involved ln four

Soviet projects which probably vill be abandontd. This amount aust still be repaid with intareat. Tbe projacta lncluda an agricultural facility at Tug Wagiala and facllitiea at*Belib for production of cotton, oil seed; and grain. Production frca these facilities ware planned to satisfy tba nation's need for grain, supply rav material for food-processing industrial, and provide incosa for repayment of loans and interest, (Mogadiscio, La)

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