DIFFICULITIES ENCOUNTERED BY LESS DEVELOPED COUNTRIES IN THEIR ECONOMIC RELATIO

Created: 3/13/1967

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km^rahdum FOR:

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Chief,

Mfflculttea KccoratercU by Leas Dcveiojed Ccua-

tries In Their Economic Relations vith tho Soviot Unloa

1 1. Thc attached background irtUay on tho difficulties rejjor-tedly encountered by the leaa developed countries In theirrelations with tho Soviet Union ia aubmlttcd In response to Mr.olby'ij mcoorandun7 end your subsequent telephone convcroatiaaa

. Moat of itho Inl'omation in thionclnssified, -It does, however, containoome infomitioa which rsalDtt tb^-cwereil

classification SECRET inforfcaUbttl.

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OA HISTORICAL REVIEW PROGRAM RELEASE AS9

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DIFFICULTIES anuXlwrERED BY LESS UKVKLOPHl)CONOMIC RELATIONS WITH THE sqwtpt HMTrw

As the less developed countries have expanded economicwith the Soviet Union, they have encountered numerousinherent in Soviet economic programs- Less developed countries often have found the Soviet Union to be an uncertain trading partner, many of ita goods to bc of poor quality, and opure parts for Soviet mechanical equipment difficult to obtain. Recipients of Soviet economic assistance frequently complain about thc delays in project implementation, the use of outmoded methods, materials, and equipaent for which high prices often are paid, and errors in planning and "execution of projects.

I. Soviet Trade with the Less Developed Countries

of Trade Agreements

For the less developed countries, the Soviet Union often has proven toporadic and uncertain trading partner. Quotas contained in bilateral agreements frequently are not fulfilled, ond trade often fluctuates from year to year. , for example, thc USSR and Ceylonrade agreement calling for,an increase in total tradeillionillion Although trade Jumpedo $Vf million,eclinedillionS. rade agreement signed with Iranpercent increase in trade overillion level achieved in that year. The following year,trade between the two countries totaledecline ofercent. An agreement with Indiaalledinimum increase ofercent in trade between the Trade Increasedercent, rising1 million3 million.

of Imports

Another difficulty faced by the less developedtheir trade relations with the USSR Is that it oftenapparent generosity, to "accommodate" them hy importingtheir primary products, only to resell substantial portionsimports on Western markets. Thus, the developing countryrisk of losing an established Western market and receiptshard currency. Cuban sugar, Ghanaian cocoa,cottonew of the more Ira portent commoditiesare resold in Westernasercent

of tha Egyptian cotton purchased by the USSR have moved into tho resale market and at discounts from world market prices which have been as high asercent. The United Arab Republic frequently haa attempted to overcome this difficulty by restricting Soviet

haAf oV the Crttto" marketing year in

T 0fficialsmuch a| they could

to Western importers during the first hair of tho marketinrj year.

C. Trade Deficiencies

ncountered by less developedin their trade with the USSR are the poorZT

chGduii"fi deliveries, and theto obtain spare- parts onhe followingof thesearo some

transport scheduling by Soviet officialshashe-rapid delivery of Soviettheir accumulation and spoilage on thedocks before they could be moved toareas. Such was the case with cement shipped

to Burma, Guinea and Sudan. Because the cement vas Sin t quickly hardened when exposed to

Soviet ship scheduled to pickoad ofarrived late and found the bananasthe docks. The Soviet trade representativethen decided that the USSR was notbananas at that

shipment0 tour, or fertilizer to Iraqused on Soviet-aided state farms not onlypackaged but arrived without notice, couldstored, and became caked and unusable. Soviet Unioncharged >uoinars per ton'

coBparud withinars per

paid by Iraqi toporte,'. for similar fertilizer from other countries.

l^reeJtinaKaccepted atradc credIt0 million for the purchase of Soviet petroleum

equipment After the Initial Shipments of suchwere foundnferior, the Argentinecancelled the remainingercent of the credit.

matches are of such poor quality thatthem cannot he used in tropical climates. In a

tte Gasollnc Purchased from the USSR hot, hadifih sulphur content that trucks and automobiles using it have required frequent and extensive motor repairs.

Cairo Klecti ,city and Gasoviet trade Organization because

shipments or soviet gas coal were round loigh ash and sulphur content and did not produce cokey-product.

arter agreement with Colombia called for the

exchange of coffeeons of Soviet wheat. Thc wheat delivered was not of thc specified grade and wasower quality normally used for making spaghetti and not bread.

omalia, whichajor share of its truck

and tractor requirements froa thc USSR, hasgly complained about the poor quality of such fpnient tends to break down frequently and operate improperly, especially under tropical conditions. Therucks ln particular have performed poorly. Axles break frequently, their engines overheat easily, and the fuel consumption makes the cost of using these trucks almost

echanical difficulties highlight the needon-tinning dlow of spare purts. ltomcstic salesor Soviet mechanical equipment eontinually complain about the difficulty in obtaining spare parte for auch equipment. Busineanraen In Somalia, Hall, and Iran, for example, have complained about thelosses this problem causes. yrian agent for Soviet tractors in Aleppo cancelled his contract after two years because the spare parts problem had caused his business to decline.

D. Political Use of Trade

Tho Soviet Union is not above using Its trade to express dissatisfaction with the policies of its trade partners, when Iran Joined the Baghdad Pacthe Soviet Union cancelled Its agreement to purchase agricultural products fron Iranian farmers in northern Iran. Since most.pf their exportable surplus was scheduled for shipment to the USSR, these farmers suffered severe financial losses. Iran's conclusionutual defense pact with the US9 brought similar economic reprisals. In addition, the USSR refused to renew contracts to supply newsprint to Iron. Since about one-third of Iranian imports of newsprint was beiue obtained from the USSR, many newspapers in Iran were forced to curtail their publishing activities until they could purchase the newsprint elsewhere-

Israel's participation in the tripartite invasion of Pgypt6 was followed by Soviet cancellation of an oil-for-citrus fruit barter agreement, at great financial loss to Israel.

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Tic Soviet Union expressed ereat moral indignation over Israel'she fact that tho USSR did rot cancel any economic ftgrecrwnts with France and thc United Kingdom Indicates that thc Soviet action wasloy lo curry favor with the Arabs. The Soviet Union has applied similar pressures ln other countries when its favorable position has been weakened, such as in Algeria, Ghana, and Iraq after coups deposed Ben Bella, Hkrumah, and Kansen.

II- Soviet Economic Aid to the Less Developed Countrlos A. Political Motivation

The Soviet Union seeksNio^project on image of its economic aidelfless undertaking to assist in the eoonomic development of the leas developed countries. In reality, the USSR employs its aid programajor foreign policy tool to encourage the growth of socialism in recipient countries and toavorable political climate for the activities of domestic Ccumainists. In answer to on Iranian (Ymini fit's questions concerning Sovietaid tooviet official summed up Moscow's policy when he stated:

he Soviet plan .to cultivate the underdeveloped arena 'with foreign aid. In Iran, as in other'Soviet aid will help speed the economic and social changes necessary to create the properfor the establishment of socialism. This trend has already accelerated in Iran, cannot now be stopped, and must be encouraged by Soviet aid for thc sake of the Communist movement. 2/

cutionable Economic Priorities

Leon developed countries not only have cause to question Lhe motivation of the Soviet aid program but uJso Its soundness in terms of tholr own economic requirements. Some Soviet-assisted projects huve not contributed to the establishmentiable, self-sustaining economy, made,optimum use of indigenous natural and human resources, and been able to meet repayment commitments imposed by the USSR. The Soviet Union readily agrees to construct projects of lens economic prority which can be completed rapidly and orfer quick propaganda returns. Consequently, there arein Rangoon, Djakarta, and Bamafco, hotels in Burma, Afghanistan, and Guinea,residential Palace in Conakry. Such projects contribute little to the long run economic requirements of the less developed countries.

Deficiencies inier takings

planning, "asty technical surveys, and the lack of market surveys often arc serious deficiencies in the Soviet aid proGrajn which create great dlfficulUes for the aid-receiving The result oftenroject which must be operated atcost and usually cannot fulfill the needs that prompted its The following examples are illustrative of these prob-

w short-wave station built on Mt. Kakoulima near Sinfornia, Guinea, does not operate Because of hasty surveys, Sovietdid not diecoyer arge deposit of Iron ore lay under the station. esult the strength of thc signals is sapped by the ground's conductivity.

A Soviet-built milk processing plant in Mogadiscio, Socaalia, is operating at aboutercent of capac-ity because Soviet technicians ignored the raw material requirements. Mot enough dairy cattle are bred in the area toteady and economical supply of raw milk. Moreover, no market survey for the plant's production had been undertaken, with the result that even the swUi amount produced cannot be easily marketed in the area. 3/

A canning factory built in Guinea can operate for only two msnths each year because not enoughproducts are grovr.easonable distance of the plant. U/

A metallurgical plant in Indcocsia does not have economic access to raw materials. When the plant is completed, much of Its raw material requirements will have to bc Importedeavy cost.

Because of inadequate sources of raw materials or markets for their products, the Soviet-builtfactory at .lanakpur, Nepal, is operating atercent of capacity and the sugar refinery at Blratnagar is losingullion rupees 5/

The foundations for the machinery to he iustallcdteel plant In Ceylon have sunk, because of inadequate technical surveys and preparations for drainage. The result has been prolonged anddelays to correct the deficiency, andis now well behind schedule.

(V) Similar problems have plagued ihc BalIkpapen-

rood inof Indo-

nesia. Although thi; road passes through large swampy areas, not enough allowance was made for proper drainage. ew months, completed sections of the. highway became submerged and began to break up. Moreover, much of the Sovietused on the project was found to be underpowered and Ill-suited for tropieaL conditions.

(ft) Preliminary surveys conducted near TJilatJup in West Java, Indonesia, in connectionuperphosphate plant, reported the existence of adequate supplies of phosphatasecond survey reported that the deposits were too small to be commercially hird survey was required to determine which of the two surveys was correct.

Among other complaints which might be mentioned are official criticismoviet-built hotel ln Guinea as beingdesigned and containing inferior construction materials; the provision of equipmentharmaceutical plant in India which is as much as hQ years behind Western designs;nd the return of Soviets by Ghana Airways because of their high cost and inefficient operation.

or_Soy_-cl

Soviet technical services must be paid for and usually are charged to thc Soviet credit extended for specific projects, whereas these services often are providedrant under Western aid programs. The costs of Soviet services tend to bo high and in many countries have accounted foroercent of total Soviet expendituresroject. Mailan officials have stated that for many Soviet projects the greater port of aid funds is being spent for technical services. Ghanaian officials, prior to the coup6 whichrumah, had similar complaints. For example, the total costeological survey undertaken by the USSR in Ghana was estimated at7 million. Of this total,as lipent to cover tlie costs of the services of Soviet

Thc 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 thc foreign exchange portion vhich Is chargeable to thc Soviet credit areound-trip plane fare (often first-class) between the USSR and the host country; annual leave; and lifepremiums. echnician's family accompanies him, their fares must be paid, in additionamily transfer allowance. The host country also is responsiblet of the local

V-bicc coviet technician. These include free mmii-vXpace, official transportation within tneund i'urniined quarters for the technician ond his family -

The nai'row functional specialization of Soviet technicians (an outgrowth of the specialized Communist educational system) alsoost-raising factor. Several Soviet technicians sometimes are required to perform the work of one Western technician. proportionately more technicians are requiredovietthan would be employedestern aid project. The problem is aggravated by Soviet unwillingness to accept full administrative responsibilityroject. Soviet organizations are responsible only for conducting technical surveys, for coordinating work of all technicians employedroject/'for directing basic construction activities, and for properly installing machinery and equipment. The aid-receiving country usually is responsible for all related work involving the use of domestic goods and nervices and foroverall construction activities. This often requires administrative experienceecipient country may not possess and for which aid wan originally sought.

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