Created: 1/1/1968

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Outlook for CMlogn-Sovlot Economic Relations

Duringnext several yoars, Chllo may well take further positive steps toward closer economic rolatione with tho USSRespecially if tho Frel government is succeeded0 by one that is moro leftist and lose friendly to the United States. Tho Chilean foreign minister's lmponding trip to Moscow probably has tho purpose of negotiating details on the use of the Soviot credits extonded last year, diocuBsing plans for trade expansion, and (concoivably) arranging additional Soviot aid. Although Chile seems to be modifying its traditional foreign economic orientation, closor economic relations with the USSR face various obstacles. It thus seems unlikely that Soviet aid and trade activity in Chile will aasuze appreciable economic importanco during tho next several years, however significant it might become politically. The Regent .Soviot; Credits In Perfective

Chile received Its first economic aid ccsoltecnts from the USSR inoining Argentina and Brazil as the only Latin Acorican countries that have accepted Soviet aid offers. Chilo recoived two credit extensions amounting0 millionown2 million on one of the credits). This total compares with commitments ofmillion to Argentina3 million to Brazil. hilo (as well as Brazil) is authorized toubstantial part of tho aid commitment available to the private Hectoran ideological concession promoted by unwillingness or inability to use largo Soviet crodite for public investment programs.

Like the bulk of Soviet aid extensions to Argentina and Brazil, the commitments to Chile ore trade credits. Such credits generally carry higher interest rates, have shorter repayment periods, and are less closely tied to specific projects than tho credits that characterize tho Soviet pro gran ln the rest of the world. The credits to Chile carry interest ratesnd 3J- percent, compared withercent rate specified for tho trade credit0 Billion extended to Braailepaymonteriodears (the typical period for trade crodlts) is indicated for ooee projects or contracts under the credits, while up toears is proscribed for others. Although less favorablo than tho terms allowed for cany US aid credits (not to nention the large portion of US aid diobursed asho toras of tho Sovlot-Chilean agreement represent substantial concessions from regular coaoercial arrangeaents for such credits.

How the credits are supposed to be repaid is not entirelyexample, tho precise share of the repayment to bo mado inis not specified. The treaty authorises part of thebe used to buy Chilean goods, but the USSR is not committed toof any spociflc types or amounts. This and other aspects ofquestion probably have notorkod out yot. Foreign Minister's Prospective Trip to HoV

The most obvious reason for the Chiloan foroign minister's expected trip to Moscow thia aontb or next la negotiation of details of lastconomic agreements. The countrlos also may sign trado agroemento that

would formalizo and supplement tho exchanges of goods envisaged in the aid Announcement of additional Soviet economic credits cannot be ruled out, if tho Chilean government believes it must further mollify the

country's leftist political elements or wants to underscore Its dismay with

US sld policiee.

The neconmry next stop in implementing tho credits extended last yearis Chilean-Soviet agroeoent on their specific uses. The USSR seems to be taking the initiative in project planning. It already has suggested that

oillion credit bo usodopper rollingopper and

molybdenuBetro-cheaicelubricating oilactory producing prefabricated housing notorial, and tho improvement of port facilities. All of these projects would fill obvious needs in ' hile. The National Dovelopaont Corporation (CORFO) has boon considering heso projects, but none have yet boen officially approvod. Whether Chile has alternative projects to propose to the USSR is not known.

Specific arrangements for repayment of tho Soviet crodlts also might bo discussed at the prospective mooting. Tho aid program could founder on this point. Chile is interested mainly in diversifying its exports by finding new murkots for such products as ohoos, other leather goods, wood

and paper products, fishmeal, procossed

to divert to the USSR the copper that can easily be soldat least at

present for hard curroncy in established Western markets. -The-USSR, on tho other hand, has no particular need for simple manufactures and

foodstuffs but Is interested in importing metals.


Although negotiation of additional credits at thia Bcctlng Geemo premature, it cannot be ruled out. The USSR haa in the peatllllngnesB to provide more aid to latin American countries than they have accepted

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and easily had the capability to do so. urther aid extension ofllllonmplementation of which would be spreadumber of yearsould add little to Soviet dellvorlea of economic aid, which have been running at0 million annually. The USSR thus would have no problem ln enlarging Ita aid commitment, ahould tbe Chileans desire this for political reasons. OutlooX for Aid and Trade Activity

Since the projects to be aupported by Soviet aid are yet to be determined, the credits have had few practical results so far. Som machino tools and light equipment are aaid to have been sold to small Chilean enterprisea underllllon credit, but tbe large, credit-worthy companies have shovn little interest in Soviet eoodB under any terns. Chilean doubta about the quality of Soviet goods, the compatibility of Soviet equipment with that previously obtained from Western countries, and availability of servicing and spare parts have preventedodeBt development of trade and probably will continue to Impede it.

jlIj'jj" l"ther economic and political considerations also cay hamper

i i-4rvty"<b'-:'

aid and trade activity in Chile. Soviet aid normally involves tbef Soviet advisors and other technical peraonnel. Many Latinountries fear the opportunities that their presence would provideubversion

Inasmuch as the USSR will not ordinarily accept complete responsibility for the construction end equippingacility (that is, supply iturn-keymplementation of Soviet credits necessarily makes financial and technical demands on the recipient countrydemands that Chile might not be willing or able to meet. This problem may be particularly important if acceptance of the credit reflected political maneuvering rather than pressing economic need.

The experience of other Latin American countries in using Coraounlst aid also is instructive. Brazil has drawn only aboutercent ofCommunist credits6 million, three-fifths of which vere extended Argentina used onlyercentmillion Soviet credit extended8 before it expiredI. Chilean and Soviet Motives

Chile'b acceptance of Soviet credits and professed Interestredominantly political basis. Frei's program hasachievement of increased national economic sovereignty, callingdependence on the US and increased relations vith the USSR. leftist parties and the radical element of the PIC havegovernment to take even greater initiative in developing 'vV-'v"

No urgent economic need for Soviet aid lslthough the rate of growth of gross national product slowed7 (estimatedercent as compared vithercent, the country's average rate of growth


ln recent years haa exceeded that of Latin Anerlcahole.

Continuing strong world demand for copper has boosted export earnings and tax receipte. The Inflow of long-term investment funds and suppliers' credlta from the US and Western Europe has continued and haa helped to spur the rapid growth of Imports of machinery and other capital goods'f. Progress has been made ln sieving the rloe in the cost of living, and on agricultural development program of considerable potential importance has been begun. Important econcmlc problena remain, of course, and the economy la highly vulnerable to any deterioration of market conditions for copper. Moreover, the level of US aid declined7 and may well decline further0 if Chile purcltaoes supersonic Jet fighters in tbe face of recent US legislative restrictions on aid under auch circumstances.

In its effort to win friendB and promote its interests, the USSR lasery large net with its economic aid program. The program now embraces kO Pree World countries of varying political coloration. The Initiation of sizable aid and trade activities with Chile no doubt has attractions for the USSR because of the wide influence of leftist groups in Chile and because of the dissatisfaction of other political elements with the extenslvoneas of US Interesto. Judging from paat experience, however, the USSR vlll pursue thia opportunityn the economicairly deliberate and hard-headed way.


Supplgjooator/ Inforaatjon O'. Out Look for Chilean-Soviet Econanjo Relations

Soviot Motives

USSR haa used coBoorclal relntionaHips suddurlna tha pest decade to support overall Soviet international political object Ives se veil as to satisfy its economic requirements. By strength anlng ecoeonie ties vith the less developed countries/ tee USSR Una projected its presence Into tho developing world in the hops thnt it vlll reduce and eventually cllndnate Ifeotern influence.

In Latin Aaericev the USSR ls Intensify Ids Its efforts to expend trade and aid activities. This Initiativeoviet thrust into nev markets as veiltep toward laprcving etate-to-etote relatione and eventually Injecting the Soviet presence Into Latin America. Kosln, reporting ln Pravda the increase ln Soviet-Latin American tredeotes that Trade brings nations eloeer together"eeheas their dependence on imperialist powers, especially the US.

As part of its long-run strategy of penetration as well aa fulfilling aire immediate economic requlresxerU, the USSR lsto expand trade end extend economic eld to Latin Americanwithout record to their political orientation. Just as it hoe extended eldetera-oriented countries ln the Kiddle Fast (iron nndhe USSR le willing to extend aid to Argentina In Latin Anerlca. Beyond0 alllion of economic old already extended to Latin American countries, the USSR has made offers of at leastallllon ln additional eld to these countries during the poet year. Offers vere mode tot Argentina for participation in the constructionuge hydropower complex] Colombia for the petroleum Industry] Costa Rice for an Industrial complex and portnd to Ecuador end Uruguay for the purchase of aechlnary and equipment.

Soviet motivation for Its recent econoaic efforts Into be no different than lh the other countries of Formal Bcviet-Chilean'rclati^ii vere Initiated Inthe signingultural agreement end the establishmentrelations;5 the USSR participated In theFair andultural Instituteodest beginnings vere made In trade between the twoj and early ln three econoaic accords. Includingstate sector projects, vere signed. The econoaic rationaleSoviet Initiatives ln Chilelte clearheof Its carkets into Latin America aod possible futureChilean copper) but Koocov hopes that tlie ecoixwdc tieslead to closer political relations as


Hecant projectere Identi-

fied ab(trade) creditsIn fact, gobeyond the usual trade credits. Eie repeyppnt conditions provideanee of teres2 years for aaorltlzotionfor intereot) which are not associated vith specific uses. Tee softerears to repeyercent interest)apply to credits for Ctote enterprises while the harder tores apply to credits for private enterprise. This would he cons Intent with the Soviet objective of strengthening the state sector of developing countriestep toward soclsllsn.


5 JanuaryS ' '

DlTJ FOR: Chief, CconOJlc Research

Reouast for Paper on Possible Gil loan/Soviet


. S, Aol'uSSador to Calls has requested an Agency Muoy to reflect any possible tradareditcents (Including concofi*locory) tbe Soviets rra likol; ta ofXor ito thiinns In ralho to be bold Ineo*c foreign Ministry personnel.

Jnasp.uchs ri the Chileann* star io oxasetad to lea an for Rescos in Januar? orS, re believeespond to thoeueatsoon a* ficrjiliJo.

Attichod pro two o? a


to bo usod nsj.vioi*-mg psp<ir mr tho Ambassador,

1. Plenno lot ua know if our office can bo of assistance to you in the servicing of tbo Ambassador's roqusst.


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