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Economic Intelligence Memorandum


CENTRAL INTELLIGENCE AGENCY Office of Research and Reports

Economic Intelligence Memorandum



cod talcs In^ajBBJpPTn BUUi


ine Irani-

selation of which In any manntr luihorized person is prohibited by law.

CENTRAL INTELLIGENCE AGENCY Office of Research and Reports



I. Cuban Trad* with tho

A. Begotiations



II. Cuba's Balance ofl and

HI. Bloc Aid to


Development Assistance



Source References


Volume of Cuban Sugar Exports,

Cuba's Foreign

Cuban Balance of Payments,

k. Cuban Balance of Payments,

Bloc Industrial Pro;ects in Cuba aa of


Industrial Projects Under Construction in Cube

as of June

Number of Bloc Technicians ino-63


Summary and Conclusions

Economic relations between Cuba and tbe Communist0 by tbe signingeries of trade and economic add agreements. onsequence, Cuba's economic ties with the Bloc developed rapidly duringeriod.

Trade between Cuba and the Bloc during this time grew from aamount9otal turnover of more than Within this general pattern, however, the two majorof total trade followed somewhat different trends. Exports from Cuba increased1 and then turned downward rather sharply2 following the poor sugar harvest of that year. This decline will continue3 at least, inasmuch as the fall in production of sugar in Cuba has extended Imports frea the Bloc, on the other bend, increased through the end This growth probably will not be extendedowever, and there may even be some decline during the present year.

Imports from the Bloc continued to increase2 because the Bloc was willing to expand its balance-of-payments aid to Cuba. This type of assistance beganhen the Bloc increased Its buying price for Cuban sugarents perriceabove tbe prevailing world price. Price support yielded anbalance-of-payments subsidy to Cuba worthO million by the end In addition to the price subsidy,2 the Bloc also extended balance-of-payments aid by allowing Cuba torade deficit worth more0 million.

In the field of economic development assistance, the Bloc formally extendedO million in credits to Cuba between the beginning0 and the end Only anillion had been drawn by the close, howevermore than half of it to finance technical assistance.

* The estimates and conclusions in this memorandum represent the beat judgment of this Office as* The termt Bloc as used in this memorandum refers to all Communist countries except Cuba aad Yugoslavia.

ollar values are given in terns of current US dollarsthis memorandum.

ome changes will appear in the Bloc aid program. Balance-of-payments credits will continue to be extended osugar price subsidies have come to an end, however,3 at least, as world market prices have risen substantially above Bloc prices. The Bloc probably will not extend sizable new developmentather, there willoderate increase in the rate at which older credits are utilized.

I. Cuban Trade with the Bloc

A. Negotiations

irst Deputy Premier Mikoyan of the USSR traveled to Cuba tooviet scientific, technical, and cultural exposition. isit proved to be the first step in theof Cuba's relations with the USSR that has followed since then. Among the most important consequences of Mikoyan's trip was the signing, onrade aad payments agreement that set forth the general framework for Cuban-Bloc trade duringeriod. Following the conclusion of the Soviet agreement, other members of the Bloc undertook negotiations with Cuba, and, by the endrade and payments agreements with Communist China and most of the European Satellites had been concluded. herefore, Cuba andc laid the formal foundations for the large growth in trade that occurred throughouteriod.

Under the terms of these general agreements, Cuba andc trading partners have signed annual protocols that set forth the details for trade during each calendar year. The protocols12 generally called for rapid expansion in the level of trade.


In November and earlyuba and its Bloc trading partners began negotiations concerning the trade protocols feWd) The negotiations were evidently more difficult than usual, and most of^toe agreements were not signed until February. In the case of the

|inal understanding waa not reached until early April. Although the difficulties encountered probably were oneof the general strain In relations between Cuba and the Bloc following the missile crisis in the fallt appears that there were several economic issues which compounded these difficulties. These issues included the question of the repayment terms for2 trade deficit with the Bloc, the problem of arranging financing to cover Cuba's anticipated trade deficitnd Cuba'sthat the Bloc bring its buying price for sugar into line with rising world sugar

* For serially numbered source references, see the Appendix. ** See III, A,elow.

uba maintained reasonably balanced trade with the Bloc, partly because of the premium sugar price which the Bloc began to pay during that year.** owever, adeficit developed, and tbe trade negotiations begun in the fall

of that year undertook to place this trade debtormal credit basis. In addition to this problem, poor prospects for3 Cuban sugar crop made it evident that Cuba vould again require large balance-of-payments credits The prospect of continued massive aid of this type probably vas painful to the Bloc, but Cuba's need for it vas obvious and compelling, and in due course the additional credits vere negotiated,*

Although the problem of trade credits apparently was settled by the time3 protocols vere finally signed, the question of

sugar prices evidently vas not. As the vorld price for sugar continued

to rise, however, Cuba continued to press the matter. Finally, at the

close of Fidel Castro's trip to the USSR in May, the Soviet

announced that they would increase their buying price for Cuban sugar. Subsequently, Castro stated that the new price agreed toents per pound, only about half the vorld price prevailing at the time. No evidence has cone to light that vould indicate that the Europeanor Communist China have changed their buying prices, and the presumption Is that they have not done so. Although the Soviet price concessionelatively modest one, in combination with the new credit arrangements it helped further to smooth over relations with

Cuba, which vere still somewhat strained from the events of last fall,

and Castro returned to Cuba with high praise for all things Soviet.

The contents of3 protocols have never been made public except in the most general terms. Nevertheless, the public statements made in connection with them Indicate that the new agreementsan Important change in tbe pattern of Cuban-Bloc trade. In tbe case of the Soviet and Chinese Communist agreements, the presscovering them make no reference to increased trade during

harp departure froa earlier years. 2/ The press coverage .

the USSR protocol ln particular is conspicuous by tbe absence of any

mention of the proposed level of trade. The agreement

also fails torade increase, andfficial

stated that trade with Cuba will decline/ Some of3 protocols, notably those with Czechoslovakia, East Germany, and Hungary, do call for significant trade increases; however, these threetogether account forittle more thanercent of Cuba's total trade with the Bloc, hj

B. Exoorts

The trade agreements signedrought the Bloc into the market for Cuban sugararge scale (see Since then,

* See p. IU, below. ** ollows on p. 5.

Table .

Volume of Cuban Sugar Exports

Thousand Metric Tone


st Bloc

European Satellites CosxBunlst China b/







Including the following exports to North Korea and North Vietnam:O tons;0 tons; and0 tons

sugar exports have been one of the main foundations of Cuba's trade with the Bloc and have accounted foroercent of the total value of Cuba's exports to Bloc countries. 0uba rapidly expanded sugar exports to the Bloc, largely by reducing sales to the Free World, although Increased production of sugar also was an important factor

owever, Cuba evidently has been reluctant to make further reductions in Its exports to the Free World, and2 these exports were maintained at the expense of shipments to tbe Bloc. The sugar harvest2 fell sharply below thatotalof aboutercent. Following this loss in production, Cuba was forced to cut total exports; however, by liquidating Its reserve stocks, tbe decline In exports vaa held toercent. Exports to the Bloc absorbed considerably more than their proportionate share of the decline, falling byercent comparedecline ofn exports to the Free World.

The volume of Cuban sugar exports will decline again3 following the poorest harvest in aboutears and the completeof stocks The available evidence indicates that the reduction again will be reflected primarily in exports to the Bloc, with deliveries to the Free World receivingelatively moderate cut.

The record or Cuban sugar exports over the past several years appears to contradict the widely beid view that Cubaixed quota for sugar exports to the Bloc. Rather, It appears that Cuba attempts to confine fluctuations in tbe volume of Its exports to th* free World within fairly narrow limits, while exports to the Bloc areuch wider range as circumstances may dictate.

Tbe value of Cuba's exports to the Bloc has followed closely the changes in volume of sugar exports (see Tables Price changes, on the other band, haveinor role in determining the value of exports to tbe Bloc. An exception to this occurredhen the Bloc not only increased the aoount of sugar purchased butits buying price as well. 0 the Bloc had paid the market price for Cuban sugar. At the beginning1 tbe Bloc raised its buying priceents per pound, considerably above the vorld market level at the time. This price was maintained2 and probably is still oaintalned by Coentunist China and the European Satellites.

The decline In value of Cuban exports to the Bloc that began2 will continue at least The reduction in volume of sugar deliveries will be offset only in part by the limited Increase in the USSR's buying price that was announced in late Hay of this year. The largest reduction probably will occur in the value of exports to Communist China, while the value of exports to tbe European Satellites will suffer the least.

C. Imports

Following its development aa the principal market for Cuban sugar, the Bloc has also become the principal supplier of Cuba's ummary of the rapid growth of Cuban Imports from the Bloc duringeriod is given in Table

There appears to be little or no possibility that Imports from the Bloc3 will continue the growth evident during the 3years. The increose2 was considerably less thanI, and2 level of Cuban imports apparently was adequate to meet the basic needs of the domestic economy. Also, It is becoming increasingly difficult for Cuba to finance additional imports from the Bloc ia the face of the continued decline ln income from exports to the Bloc. In fact, given the probable loss of export incomet may be impossible for the Castro government ever, to maintain Imports from the Bloc at2 rates.

* P.bove. ** ollows on p. 7.

Cuba's Foreign Trade

Milliop US S



European Satellites Communist China b/

Negl. Negl.

Negl. Kegl.

Negl. Negl.



World clearing c/ Free World convertible









European Satellites Communist China b/

Negl. Negl.

Negl. Negl.

Negl. Negl.





World clearing c/ Free World convertible









Bloc Free World


North Korea and North Vietnam.

arrangements with Free world countries did not reachscalelthough clearing agreements vithin effect before this time.

coverting. . values for Cuban imports,factor ofercent. value for Freeercent. value for Bloc countries was applied.

Several factors, however, will help to compensate for the loss in export income. First, Cuba will draw more rapidly against thedevelopment credits that the Sloe has extended, and this willadditional financing for imports* Second, there ia some possibility that Cuba will utilize its increased export earnings from the Free World to help cover its deficit with the Bloc. Cuba willubstantial increase in its Free World export income3 because of tbe dynamic rise in world sugar prices.** At this point, however, the evidence does notery large increase in imports from the Free urplus moy be in making which could be used to finance some of the import surplus free the Bloc.

It will also be possible to maintain2 rate of imports if the Bloc is willing to increase its balance-of-payments credits to

* Seeelow. ** There is good evidence concerning the terms of sale foretric tons (tonnages are given in metric tons throughout this memorandum) ofillion tons expected to move from Cuba to the Free World Prices ranged frODents per pound to5 cents per pound, with the averageents per pound. Furthermore, the New York Times3 has quotedsugar market "experts" as stating that Cubaillion tons from3 crop at an average priceents per pound. The average price for Cuban sugar2 wasents per pound.

*** Imports from Free World countries during the first quarter3 wereoercent below the average quarterly import ratehis conclusion is basedample of imports Including those from the UK, France, West Germany, Norway, Sweden, Belglum-Luxembourg, the Netherlands, Canada, and Japan- The conclusion is also supported by evidence that the level of Cuba's outstanding letters of credit for dollar and pound sterling payments was substantially below2 level during theonths '

During May, however, the value of outstanding letters of credit increased rapidly. By the first of July, outstanding credits were substantially higher than the average2 and stilluch slower rate then in May. The increase in outstanding letters of credit appears toubstantial rise in the rate of imports from the low levels of ther It months It is not yet clear whether this increase will be enough toate of import from Free World areas for the yearhole that is significantly higher than

Cuba Altbeugh new credits have been extended to help finance imports* there la no evidence to indicate anabove the amount of aid extended last year.

Early3 it appeared that imports might not be maintained at laat year's level. During theonths3 the volume of dry cargo arriving In Cuba from tha Bloc ves nearlyercent below tbat of the same period As time passed, however, the tonnage of incoming cargo froe Bloc ports Increased both In absolute terms and relative to tbe volume For theonthshole, dry cargo volume vas only aboutercent below the same period Deliveries of POL to Cubaattern similar to that of dry cargo. During the first quarter3 tbe volume of POL Imports was aboutercent below thateliveries for theonths, however, were only aboutercent belowm value terms the decline In PCX probably vas more thanercent because crude petroleum, whichower value thanarger share of the total than vas tbe case

Balance ofI"

of Cuba's balance of paymentsl2 are presented In Tablea 3 * It win be noted that the geographic distribution of Cuba's exports in these tables la socewhat different from that presented inhese differences reflect tha fact that some sugar exports to Free World countries12 were sold on the account of various European Satellites.t Cuba received payment for these exports through lta clearing account with tbeconcerned and not ln convertible currency or clearing balances in its account with the importing country. For balance-Of-payments purposes, these exports have been regarded as exports to tbe Bloc, and the trade figures have been adjusted accordingly.


Host of the other figures In tbe Current Account section of the tablea are fairly clear and need little comment. The Technicalcategory vas Included because of the special Importance of BloctT

* See p. la, below.

ollow on pp.

*** P.bove.

uba exportedons of sugar,illion, to Free World countries on Bloc account. Information for all2 la not available; however, extrapolation of data for the first quarter of the year Indicates tbatillion of Indirect sugar exports took place during the year. Thusillion worth of such exports to the Bloc took place laears, jj

tt Text continued on


iWl i

technical service exports and because an offsetting entry vas needed for the technical aid portion of long-term capital imports.

The Other Invisibles item In the Current Account deserves some special notice. Ofillion entered under this category in2 balance ofillion vas earmarked for tbeof the Armed Forces.* illion entryI vas made on the assumption that expenditures for Other Invisibles vas about the same in both of the years under consideration.

illion under Donations2 represents US ransom

The entries under Long-Term Capital reflect drawings against Bloc economic development credits. iscussion of these items, see IH,

The entries ln the USSR column under the Convertible Currency category reflect the hard currency payments made by the USSRillion tons of its annual sugar imports from Cuba. The small entry for Communist China represents limited hard currencymade1 for sugar imports. The entries in the Free World columns include reductions in convertible currency reserves plus tbe hard currency payments from the USSR and Communist China. The net reductions in convertible currency reserves are found in the Total columns, 9/

The Clearing Balances with the Bloc category is self-explanatory. In general, the entries here reflect Cuba's accumulating deficit in trade with the Bloc. Under Clearing Balances with the Free World,illion entry in the Satellite credit column2orresponding entry In the Free World debit column. Thisthe probable transfer of Cuba's favorable clearing balance vith Morocco to one of the Satellite countries.

I who provided this Information iVBLV vas given the task of estimating the amount of US dollars that Cuba vould have available to finance Importsnthecourse of this project, the National RanV of Cuba provided

I an estimate of the dollars that It vould need to cover Its "unfavorable invisible balance." Of the Bank's estimateillion vas classified ambiguously as "special items" that the Bank vas unwilling to identify further, was able to leern only that the "special items" were expenditures of the Ministry of the Armed Forces.elow.

Bloc aid to Cuba nay be summarized under three broad categories: (l) balance-of-paymentsssistance In tbe planning, financing, and construction of economic development products;echnical assistance for the general administration and current operation of tbe economy. In terms of the total value of aid formally extended, the economic development category is the largest. In terms of aid actually utilized, however, balance-of-payments assistance is by far the most important.

A. Balance-of-Payments Assistance

The Bloc has provided balsnce-of-payments support to Cuba since the beginninghen the Bloc began toremium price for its sugar imports from Cuba. Prom the beginning1 through the endloc countries purchased sugar from Cuba which, if valued at prevailing world prices, was worth0

The Bloc's buying price ofcents per pound was considerably above the world price during moat oferiod, however, and Bloc countries actually0 ailllon for their Cuban sugar la-ports. Thus Cube received an indirect balance-of-payments subsidy0 ailllon overear period.

*2 the Bloc purchasedillion tons of Cuban sugar, and during the same period world prices averaged slightly lessents per pounder ton).

** Pp.espectively, It will be noted freep.bove) that Cuba ran ain its trade with the Bloc0 amounting toil-lion, and It would appear on the face of the matter that this amount should be deducted from the subsequent trade deficits to arrive at an estimate of tbe net clearing balance as of the end owever, much of Cuba's exports to tbe Bloc was paid for withcurrency rather than with barter. Consequently, tbe Cuban trade surplus of that year probably did not result in clearing balances of any importance.

1 the Bloc also allowed Cuba to accumulate small clearing account imbalances. This type of trade deficit did nota major problemowever, when the Bloc began tolarge-scale balence-of-paymenta credits to Cuba. At first, there evidently was no formal credit extension. Rather, it appears that early2 various Bloc countries, primarily the USSR, accepted the necessity of exporting to Cuba substantially in excess of Cuba's ability to pay. Therefore, as the year progressed, Cuba accumulated growing adverse balances in its Bloc clearing accounts. Tablesndndicate that the aggregate clearing account deficit balance by the end2 was0

Formal credit arrangements covering the clearing balancesworked out until3 trade protocol negotiations thatin2 and esult of theseUSSR agreed to permit Cuba to repay then the Soviet-Cuban clearing account. Bo indication has been given concerningto be charged, but presumably the standard Bloc rate ofwill apply. The Chinese Communists agreed toear period beginning Ho interest is being chargedcase of the Chinese credit. Bo information is availableterms worked out for the Satellite clearing

During the negotiations that arranged the credit terms Just discussed, additional credits were also extended to finance Cuba's3 deficit. Although public announcements have made It clear that both the USSR and Communist China have granted balance-of-payments creditso Indication has been given as to their size. Czechoslovakia, however, hasillion long-term credit to Cuba to finance imports

B. Economic Deye* opment Assistance

In0 the USSR0 million line of credit to Cuba for general economic development. Later in the same year and earlyi the European Satellites and Communist Chinaotal7 million in economic development credits. These early credits are long-term, low-interest arrangements. Repayment periods rangeears ia the case of some of the Satellites toears ln the case of the Soviet credit. The standard Interest rateercent, although the Chinese credit is interest free.

Subsequent to the extension or these long-term credits thetwo additional lines of credit0 million each, one forof the nickel industry and one for general development The nickel creditedium-term arrangement with amillion

of credit also is medium term, with repayment no longer than 5in2 the USSRillion creditishing port at Havana. Altogether, by the endthe USSR and the rest of the Bloc had grantedotal

illion in economic development

In contrast to balance-of-payments assistance,of tbe development credits haa been drawn- Of themillion extended, only anillion actuallyutilized fay the end of

Furthe nacre, onlyillion of the drawings were accounted for by in-ccrts Ty and equi^-eat.

does indicate clearly that aa2 Cuba probably waa able to make only limited use of the Bloc's development credits. The restricted use of these credits Is explained by thehe fact that most of the large Bloc projects did nott least some of the industrial plants acquired from the Satellites were paid for entirelyurrent basis;ome other plants were only partially covered by credits, with

advance and down payments from Cuba coveringoercent of the total cost.*

Unfortunately, no documentary evidence is available toamount of credit drawings used to finance Bloc technical aid tothe basis of the numberoftecbniciane- estimated to have been sent(seealary paid to Bloc

technicians IsO per month, it is possible to calculate drawings for the services of technicians atillion as of the end/ Something must be added to this figure to take into account

A Havana press statement of0 indicated that the Cuban Monetary' Stabilization Fund had setillion ln foreignto acquire Industrial plants from Europe. The plants to bewere listed, and It Is apparent that they are the same as those which Cuba has been acquiring from the European Satellites. There are available two contracts between Cuba end the Czechoslovak firm Technoex-port for technical assistance in connectionydroelectric plant on the Rio Yaxa riverilm laboratory at Havana. It is apparent from these contracts that Cuba is to payurrent basis for the ervices rendered. Although only technical assistance is involved. It is reasonable to assume that Cuba will be required to pay currently for the equipment needed by these projects as well. Inasmuch as any creditfor these projects.wouldjpresumably cover both technical aid and eouinment.


,evldence forer month estimate for technicians' salaries. Sources could be cited thatonsiderably higher figure, but the above estimate was chosen becauseAHb^Hh^LHHbHHompares well with information available on salaries paid to Bloc technicians ln other parts of the world. illion was arrived at by applying the salary figure to the data inelow). Inoing, the monthly salary was converted to an annuel figure0 pernd the total salary bill for each year was computed by0 by one-half the increase in each year plus the total present at the end of the previous year.

the cost of travel to and from Cuts and the cost of design and planning done in the Bloc on various projects not yet under construction. Even accounting for these factors, however, it is doubtful that totalby the end2 for technical assistanceillion.

3c probably will not extend much in the way ofeconomic development credit to Cuba. Nevertheless, in January of this year the USSR didew creditillion to helpew irrigation and land rehabilitation

More important than this small addition to extended aid,the fact that the first part3 produced signs ofagainst outstanding development credits. The volume ofto various Soviet projects in Cuba during theonthsyear was considerably higher than the volume delivered during3 months The number of technicians present in Cubawill be considerably higher than the average for allillorresponding rise in drawings for technicalan increase in drawings is evident, it also appears thatis fairly

that imports of machinery andnder development credits3 will totalittle moreillion. If this proves to be the case, it appears that by the close of this year probably about three-fourths of the Bloc development credits will remain unutilized. d)

In spite of the evidence that drawings on development credits have been relatively limited, the Bloc nevertheless is engaged in anumber of projects throughout Cuba. ndndicate the number of industrial plants undertaken by Cubac assistance. Tbe values listed in the tables represent total coats, including local construction costs. The value of Imported machinery, equipment, and technical services for all of the plants listed probably amounts0 million0 million. The basic source for the Information in the tablesecent Havana press article. Other available sourcesthat acme of the values given by the article may be somewhat high, but ln general the Information appeara to be accurate. In addition to the projects in the tables, others probably are in the planning atage. Furthermore, the USSR is engagedeneral geological survey of the island androad-scale survey of Cuba's mineral resources. The USSR has also begun work on en irrigation and land reclamation project and has begun the construction of the fishing port at Havana.

C. Technical Assistance

3 opened, the Bloc's technical assistance program in Cuba appeared to be operating under somethingloud. Inasmuch as the**

*ollow on pp.espectively. ** Text continued on

Table 5

Completed Sloe Industrial Projects in Cuba a/ as of3

Value (Thousand


Pencil factory

Nonferrous metal foundry

Lock and padlock factory

Pick and shovel factory

Hut, screw, and washer factory

Tableware factory

Cacao-processing plant

Brash factory

Welding electrode factory

Radio assembly plant Santiago de las

File factory

Forge workshop


Bloc Industrial Projects Under Construction ln Cuba a/ as of3

The move reflected primarily the strain in relations between Cuba and the USSR during the aftermath of the missile crisis in the fall ofbut It may alao have resulted from scoe dissatisfaction with tbe performance of Bloc technicians. In any case, as Cuban-Bloc relations improved during the course of tbeonths, the program lost much of its momentum and urgency. By June, there vere signs that it either had been abandoned or, at least, no longerigh

In spite of the difficult atmosphere that prevailed inhe Bloc further extended Its technical aid program. In January the Cuban press announced0 Soviet agricultural specialists would arrive during the first quarter cf the In addition to these. It was also announcedechnicians were scheduled to go to Cuba from the USSR to provide assistance in the irrigation and land rehabilitation Thus it appears that the number ofin Cuba may have increased by aturing theonths

A summary of the estimates for Bloc technicians In Cuba foreriod is given in Table 7- The data ln the table are presented with considerable^

The figures in the table, therefore, should be regarded as approximate midpointsairly large range. No Chinese Communist technicians are listed, although some probably are present in Cuba.

Table 7

Estimated Number of Bloc Technicians in Cuba


In sedition to sending technical personnel to Cuba, the Bloc has undertaken an extensive program toew generation of Cuban At present, there probably areOO Cubans who have been sent toc to receive some form of education or training. The largest contingent is in the USSR, whererezechoslovakia probably Is next with at There probablyinimumuban students throughout the rest of the Bloc. 2kf

About one-third of these Cubans are receiving education at the university level, end the rest are being trained to develop vocational skills. By far the largest group is receiving training in some branch of agriculture; there aref these agricultural trainees in the USSR. In the case of other types of trainees, many have been sent to the Bloc to learn the operation of particular industrial installations that the Bloc country involved was scheduled tc deliver to Cuba.

Eesides providing training withinc for Cuban personnel, various Bloc countries, principally the USSR, have given assistance to education and training inside Cuba itself. Professors and instructors have been sent to Cuban universities and schools. Furthermore, the USSR has established, equipped, and staffed several training centers for Cuban workers, and there are indications that this program will be

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