THE RECENT RECORD IN SOVIET ECONOMIC GROWTH - CHAPTER V: EXTERNAL IMPACT OF SOV

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Effi BECEHT HSXKD IB SOTD3 ECCEOOC OBOHTB CHAPTffl V

EOTHSAL IMPACTOTEa ECffiKWIC KHERBtrtlond. Thunberg.

X*

XX. trade as an Ideological Weapon

Laying

aahlonli^

XXX.' Trade vitb the.CbmmtmUt Bloc . . .

Xhe Institutions of the Socialist World

'.' .. 1. Insulation .of the Oxwustic Econocy . Forelgn'jBychnnge Eiiblo aid Bloc Foreign

3. the Exchange Rate

h. Hoa-Conaarclal

B. trade vita Eastern Europe: from the Stick to

the

V- 1. The Berloa of the

S. The Period of the

3. Economic

It.

C. Trad* with Chine: Iron the Carrot to the

XT. Trade with too Free

Traditional

X. Unchanging CoiEDOdlty Coapoaltioa of Trad*

with Industrial

for Predictable Market*

Problem! of

Eeonoala

Tables

of Soviet Foreign

and

Exchange Ratei for Ocanarelal Transactlono

for Currencies of the Sovietnd

...

V: R. te?for)Boa-<Xaorrci*lx;5raaBaction/i

V'-'Sf- 'fO^Cttrrenciea of the-Sortet'-.Blnc 'WWi':

k. Soviet Eooncatlo Credits and Oranta Extended to the

Kviropean

5- Soviet Trad* with toe European

Share in European Satellite

nd

Trade with cceramist China

6. USSR Trade with underdeveloped Countrlea1 .

9- Economic Cradlta and Grants Extended by the USSR to

underdeveloped Countries,2 .

10. Distribution of Soviet Foreign Trade1 and Aid

with Free World Underdeveloped Countries In

Olographic Distribution or 8ovlot Foreign Trad*

Commodity Composition of SovietI96I .

Commodity Composition of Soviet .

lb. Commodity Composition of Soviet Exports to European

Satellites,

15- Commodity Composition of Soviet Imports From European

Satellite*,. 67

Commodity Composition of Soviet Exports to Conmnirt

China, 69

17* Commodity Composition of Soviet Imports from Communist

CMna, 71

18. Commodity Composition of Soviet Exports to Industrial

West,

19* Comoodlty Composition of Soviet Imports from Industrial

- .

77

22. trends in Foreign trade Beteten the USSR and Selected

Free World

- ill -

CHAPTER V

External Impact of Soviet Economic Power

I. Introduction

Upon completion of Its post-war ioduatrial recovery the DSSR emerged from the economic isolation that bad characterlEed Its behavior through moat of lte history and since theas increasingly participated in the world economy- Theemphasis given to economic growth by the Soviet leaders can be explained In terms of their desire to achieve economic, and especially technologic Independence of the West. By thes the Soviet vera tbemselve using up-to-dateto produce the raw materials, fuel and equipment necessary for the sectors of industry which they deemed moat Important. Since they had already achieved the bs^it^eoraedohich was the gsal. of' their earlier autarSlcal.policlco, they were now prepared to shift from en international economic policy that had been essentially passive and defensive to one which was active and aggressive. Wberees in the pre war period they bad imported In order eventually to eliminate the necessity for imports. In the post war period they attained sufficient strength to engage on an increasingly large scale in

trade for political, purposed In order to enhance their Influence or achieve ooae ncaeconoeilo goal In some other part of the world.

Zhe Increasing use of International economic relationstool of Soviet International policy does not, of course.the domestic eeoncmy bad attained cooplate economicIndependence of the Vest. On the contrary,today must Import not only certain industrial materialssignificance,nt Important, it continues toon Western technological advances In many And In the fields of agriculture MM consumertechnological lag <ls greatest. ostlyand production^of

"equality with" and therefore tecbnologloal independence of the West In those sectors of the economy which it considers of vital importance: military output and much of heavy industry.

Externally the burgeoning of Soviet economic power has been manifestolume of international trade vhlch has grown more rapidly than either Soviet production or total world trade. still of minor significance in the total of the world economy, Soviet exports have Increased from three percent to five percent of the total of world exports0oviet eonoodlty trade has expanded at an average annual rat* of ;'Ssa>cut;.llV^rcentac* more rapid thonrthat of GBP the growth of industrial

ve-

in

- Meanwhile, the new, aggreislve content of Soviet foreign was reflected in tbs increasl tradPvith the"

International trade. During the first half Ofs transactions vlth other countries of the CosEualst Bloc accounted forercent of total Soviet commodity trade, exchanges vlth the Free World accounting for about one-fifth. 5owever, because trade vlth Western countrlss grewrapidly than trade with other Bloc members, the share of the Free World rose fromoercent, and1 even reached one-third of total trade. Thus,5hile total

trade vos growing at aboutear, trade with the CcMHunlat Bloc rose byercent, but trade with the Free World erpanrted et an annual rate ofercent. Sola westward shift In the orientation of Soviet international exchangeeenure both of the success of ite now foreign econcede policy and of the leportance of imports free the Meet to theSoviet eoononlc'/;.

Table 1

Distribution of Soviet Foreign Trade

1

Millionsollara and Par cent of Total.

Talue Percent Value Percent ValuaJtocent

Asian

6 4 5

Free Bo 21

15 IB

Countries 15

unaccounted for

al Because or rounding, ertrponento may not add to thehown.

H. Trade a* an Ideological Wsapon A. laying the Foundation

Before World War IX Soviet International ecoocsdo relatione vat* alnoet exclusively detemlned by their ability to contribute to Soviet Industrial strength; the Banner in which their farelga ecooocclo relatione vera eonductad was detsralned by the Soviet desire for Internatlonol respectability. Indeed the single compelling goal of ell of Soviet policy was the at-tsinasst of industrial power at the uost rapid rata consistent with denes tic security. Exportsiversion ofdomestic use which van suffered only because the resources could be exchange for coonodltiea whose contribution to industrial growth would be even greatermodernime the Soviet leaders, saartlng from their treat"

ttlcail'outlfivj by. ttfti Western.-pcvare. utroTC; iselvsfi la intexmtloaalheir respectability. The Soviet Onion was scrupulous in meeting all of lte ccendhaonte on tine and at par. It purchased almost entirely for cash, exporting gold to meet Its debts when its export receipts were Insufficient. When legal disputes arose over international canoerce, Soviet courts strove for complete objectivity In their treatment of foreigners and In the nature of their decisions. 0esult of

diligent and unscrupulous measures to mobilise domestic re source a, toe USSR bad achieved an impressive measure of Industrial strength. And through diligent and scrupulous cultivation of Its international cocnerclal reputation, it succeeded inosition of commercial respectability and In fashioning formall niche in world trade.

1 During these formative jeaws, exclusive concentration

on overcoming Its economic weakness Inhibited tbo Soviet leader-

ship fromore aggressive foreign economic policy.

Certain hesitating steps along the path of economic diplomacy

ttempted but not pursued. The fact that toulitlonal

Ulan interest In -the Kiddle East, for example. Was sustained

by the Communist regime was

aid"-;

plants on the basis of long-term credits, aid to these countries, but such activities vere necessarily limited by Its own compelling domestic requLreaonto.

The full development of trade as en ideological weapon evalted the growth of Soviet economic power. When, after World War II, through the use of subversion and armed forceR succeeded in creating an empire of Satellite states in Eastern

Europe, It was for tho first tlmaosition of Influence In an International market. The Soviet Union vas therefore able to use cccxoodity exchange as the chief means of consolidating end extending Its position of power In Eastern Europe. The creationcnoralst state in Mainland China9 farther extended the scope of the International, market organized an the basis of Soviet institutions. Because^tha USSR was the largest trading partner In this "Soclallet worldts transactions could not but Influence the market.

; Even this extension of Its International economic rela-; tloos to encoajGBo other Socialist partners, however,ittle change In'basic Soviet foreign economic policy. The role of International trade .with socialist and capitalist countries ^essentially:,grovtt-orUnted, _valneA:fBr1:its..eon-

mm

Sariety of devices enabled the .USSR both toizeable import ourplus in its trade with the European Satellites end toomplete reorientation of the international commerce of these countries, away from former trading'partners In Western Europe toward the Soviet Union end other Communist states. Through reparation deliveries and war booty the USSR acquired machinery and equipment estimated tounted to upward ofillion dollars. Pseudo-legal

techniques further enabled the BSSB to arrange aformer Qerman assets in Eastern Europe inay thata claim to as much as one-half of the currentof certain Satellite countries. By placing orderssofl materials In Eastern Europo the OSSR vas ablethe course of Industrial Investment andheIndustry *lnouati lee to Its ovn rscjulrenehts.;union be core the main supplier of rev materialsIndustry, and the'^prlme market for their finished The ubiquitous pMsenc* of Soviet advisersEurope at all levels of govermnant and industryefficacy of Soviet

China after the eosucptlon of control by tho CccrxmiBt rogliim9 followedifferent'path. The Chinese Conranlot xarty

Ccrammlst China were governedolicy of mutual accomcr>dation. Chinese agricultural products and raw cats rials vera exchanged for Soviet industrial goods; the Soviet Onion provided several long-term credits for purposes'of industrial development and the services of scientists, technicians, and specialists of various kinds to advise the Chinese in their economic dovelojcent.

From the Soviet viewpoint the expansion of trad* with China provided en efficient end economic contribution to the economic development of the Soviet Far East. B. the Weapon

The shift to an aggressive foreign ecccomlc policy Ina appeared to be abrupt, but actually was thoroughly conceivsd, having long been port of Coemunlst strategy. The conceptualanlfl concerning the blatoricsllyourse of nblltieal'develbpnBnt^ while ordaining that Capitalism ^ultimately give way to Ccsaamisa, insisted that the underdeveloped

countries need not in evcry caae pass through the stage^Capitalism in progressingtovard Soclsilsm. And since theSoviet'urlters have looW^ forward to the dsythe

position to inaugurate an aggressive program of econoctlc diplomacy.

Offers of foreign aid "without strings" tocountries began to multiply&ndew minor credits were extended in these years, the Soviet aid offensive was on the whole skeptically received. The conclusionajor military old agreement with Egypt In late

nd the prompt delivery of theand technical personnel contracted for, gave the program lte first real la the second half of the decade under the leadership of the credits and grants vera extended by other members of the COBeunlst Bloc to underdeveloped countries for military and developmental purposes In Increasing TOluae. In the military sphere, the form of Soviet aid varied free the training of officers In Stuff Colleges of the USSR to the provision of modern Jet fighters. Economic aid has similarlyreat variety of Industries, rangingodern; Integrated steel mill to geologic surveys and small workshops. Trade agreements were signed providing for an exchange of the major exports of these countries against machinery, mterlals ,and; technical advice from the OSSB and Bastexn Europe and cultural and technical delegations moved to and from the Bloc in .greying magnitude; l theOBSB had

achieved

ndia,x^ and (had established the basis for expanding relationearge number of other countries. At the same tine Soviet offers of scholarships for academic end technical training InR provided en increasing flow of students and trainees from most of the underdeveloped countries of Asia, Africa and latin America.

* Although the Bloc signatory partner was Czechoslovakia, the material provided was primarily Soviet.

Toe ahlftefensiveoncede policy wi also evident in Soviet relations with toe Europeann contrast to the early poet-war period when the Satellites wen forced to contribute heavily to Soviet economicIn thee the Soviet Onion provided alcsebl* quantities of both emergency and developmental aid to other Communist countries. The policy shift from the stick to the cerroi In Soviet tre8.tr.-nt of intern Euro;* tially the result of6 Satellite revolts] at the same tine, however, the relative affluence of the Soviet union aide the policy shift

oviet economic eld to underdeveloped Free

r'-

World/countries baauunuuted'to aboutbillion, or about

ercent of tbatotaliaid

Sarins.the seme pertojiaid,

slap In the form-

opposite bos been true of aid for the Bloc. In these years credits and greats for Best Oerseay and the Cowman let Far Bast were probably at an all time high.

Soviet adventures In International finance have not been confined to the development of their foreign eld progrsa, for in recent yearsB has been active not only as a

the old

lender of long and medium tern capital, but eleoorrower. In contrast with its earlier history when Soviet trade with Western countries was conducted almost exclusivelyash basis, since the Initiation of the current seven yearoviet purchasing missions In Western Europe, Japan and thoave bargained as vigorously over the terms of the sale aa over the price of the plant and machinery for which they were negotiating. With heightening competition among the engineering industries of the Industriallted countries of the Free World, the differencenning orice able contract has often been determined on the basis of such financial terms. Tho OBSR baa consequently been able to finance aportion of Soviet imports from these countries0 on the basisndear credits. By the end2 net Soviet Indebtedness to the Industrial West for such credit financing will probably be-aboutrs.

ccemltaent. Soviet goods and services delivered tocountries amount to shout one-quarter of aid ccmmltments, or to leas than cms billion dollars for .the entire period since

onsidering the aggregate of Soviet borrowing and lending activities vlth non^ommunlst countries for the same period, the OBSR has delivered unrequited exports to the underdeveloped West

and has received unrequited Imports from the Industrial Went. On balance net Soviet International capital movements with non-Connunist countries haveet outflow of Soviet goods end services to tna Vest of only about coo-eoarterillion dollars.

rbrbapa the moot dreaatlc us* of International tradeeapon of foreign EoUcyvOcenxxed laIn the/courso of tho Sino-Sovlat ideological dispute. At that time the Soviet Union precipitously withdrew most if not all of Its technicians, numberingwho ware working in China to aid In Chinese indnatrlallratlon. This act of economlo warfare was followederitable collapse in Slno-Sovlet trade which- by the endl -badto two-fifths oflevel.*

Thus, In-

>beonaerva^'

Is attested by the position of eeonoode and political Influence that theas achieved la the international arena. Although Soviet international trade accounts forarely slgnlfl-sant portion of total world trade. Its ability to influence the

* izeable decline In Sine-Soviet exchange would have occurred In any event because of the serious economic difficulties la China, the unilateral withdrawal of Soviet technicians by itself fostered mistrust sadiversion of China's trade away from the USSR.

aw*

of certain countrleo and the behavior of certain ccoaodlty narkata baa bean impressively demonstrated. HI. Trade with tba Cimmint Bloc

The Institutions, of the SocJaliat jjMM Maxbat 1. Insulation of the Domestic; Economy

ompletely controlled economy in whichend consumption are plannedml-sul of atovery rapid rate of industrial growth, the prime function of foreign trade Is to provide the commodities necessary to plan fulfillment vhlch are not available from doom otic sources,

. At the.some time, because stability and predictability ore

yri- P&i'.

to successful planning, as well as to plan fulfillment,

''

he foreign trade mechanism must operate in sS^foJfaablan- athe dooestic economy from

the light of Cosnunist goals, it must be insulated and isolated from foreign influences. For example, in order to restrict the demand for consumer goods in Bloc countries, relatively high prices are set for such cccxaodlties. ree economy, high prices wouldajor part of commodity imports to the consumerevelopment which would thwart Bloc military

and Industrial growth Imperatives. Strict controls over foreign trade, accordingly, are noceaaarycmnuniat country.

Writers in the Communist Bloc ha yd longpride to the fact that their economies are protectedvolatile and erratic price movements thatmarkets. Insofar as their pride is Justified, ittrue that'the internal price systems of Blocno relation to one another, for the barricades whichthe dcrastic^'eyBtems from influences from thealso operate to insulate them from developments within

Tfcla isolation of tho Internal price systems of . Bloc countries baa.beTO-Bchle^^liMSM-of rigid stateover all international transactions. .Foreign trademonopoly Of the; atate .and-vlth other Bloc countries1i'rigldaiiate

g^yftll"transaction'?^feyuS

national purchases and sales are conducted In prices and denominated In currencies which are different from thoseinternally. The separation of the two price systems has been achieved end maintained by an elaborate system of artificial exchange rates and budgetary supports. esult Bloc currencies ore purely national currencies with no international

uses. Tho slaty Is usable only within Poland, the forlnt only within Hungary and the Soviet ruble only within the OSSR. intercourseommunist countryountry of the Free World is negotiatedestern monetary unit. payments accounts are also maintainedestern monetary unit and balances are settled In Western exchange. Trade among members of the Communist Bloc themselves, however, arein "terms of an accounting unituble.

2. Foreign Wrfh^ngeBtoc Foreign

ruble used In intra-Bloc commodity transac-

tions, which can be termed the foreign exchange ruble or the devlsa ruble. Is purely an accounting unit. It is notby any certificate or piece of metal or paper aa Is the Internal ruble. The devlsa ruble laonceptual standard for measuring value and need have no^more relation to^ruble than the quart which is the unit otiSSt the quart which Is the unit of dry measure. Aa long as Bloc foreign trade prices are different from Soviet internal prices for the same commodity, the value of the foreign exchange ruble is different from the value of the Soviet ruble.

a. Mature of Bloc Trade Pricing Practice

Trader protocols to existing agreements, ore negotiated among count rice of the Bloc annually.

These agreements simply list the commodities to be exchanged and the total value of trade to be achieved. It is left to trade delegations to decide in conference the details of price and quantity for each specific connodlty to be exported or Imported. These meetings are narked by strenuous bargaining and vigorous competition between the negotiating partners. The exporters of commodities for which the demand Is strongfor example, moat Czechoslovak machinery, Polish coal, Rumanian oil and timber, and Soviet industrial goods and materialscan command not only good prices but also "hard" commodities In exchange. In fact, because of the pervasiveness of shortages throughout thetrong bargaining position Is used more often to acquire scarce conraoflltleo than toore favorable price.

The negotiating partners go to these meetings armed with documentation about world market prices. Thisinformationabout-prlces at which'the commodity in questionbeen,sold .recently in.rspeclH'c transactions sin-the Vest. In fact, in the Ministry of Foreign Trade of most Bloc countries, thereivision which does nothing except collect such price Information. Thus world market prices do form the basis for Bloc foreign trade prices. These prices (the dollar price multiplied by the official exchange rate of the ruble for the dollar) are the point at which bargaining begins. Strictly,

however, thorn la do such thingingle world market pries. The price at which the UK buys bacon free Danraark for example, may be quite different from the price it pays for bacon from flew Zealand or Argentina. Thus the Bloc exporter can alwayselatively high Western price-to support hisut the laporter can also document from Free World sources his claimower price, the price finally agreed on depends on the relative bargaining strength of tho two countries as colored by their needs end availabilities.

Once the price has been agreed on,in force for the entire year, and often for severalnot Infrequently happens, however, that no agreement onbe reached. Then trade continues, being recorded atprices, subject to final adjustment when agreement Isreached. In fact It appears that thegreement on price have been as'^^efSecesSity of

purposes In keeping prices constant over several years.

h. Historical Course of Bloc Trade .frlces

Although Bloc trade prices have been determined at bargaining sessions since the end of World War H, the relative strength of the bargaining partners has changed. Iaaedlately after the war the USSR announced that cooeiodltles would be

exchanged within the Bloc at wcrld market prices. At this time. Satellite trade representatives, who had no way of knowing what these prices were, could only take the word of the Soviet representatives. They began to realize, however, that the prices of Soviet exports were very high and that the prices of their own exports were low. They themselves undertook soma market research and thereafter went to the negotiations possessed of documentation. In this way the Satellites probably have gradually forced Bloc trade prices to their world market levels. There Is come evidence to indicate that In the latemost Bloc trade prices were considsrably above world market prlcea, with Soviet export pricea being higher than Soviet import prices. Since then. Bloc trade prices seem on the average .to have declined. 3* The Exchange Bate

In0 hy an appropriate definition oft^iim^ as. to be

maintained this official exchange rate At this rate the ruble was considerably overvalued in the sensen the OS would buy much more than would one ruble In the USSR. ate which overstated the value of the ruble was probably chosen for purposes of prestige. That the rate was purely arbitrary bad no significance to the trading partners ofowever, for those in the Free World never had occasion

to usend those in the Bloc used it only for accounting purposes. Other Cceaounlst countries Blndlarly detecrolned at an arbitrary level the rates at which their currencies vers to be aeanured against the dollar "tv^ the ruble.

Sable 2

Foreign Exchange Bates for Conaercial Transactions for Currencies of the Soviet

Bate of Exchange

unit oferms of In terms of In terms of In terms of

a/

s/.

Oormny

b/

y

USSR

Ruble

4.0

0.9

as Official rates duringleva per6 levauble.

this Is the official rate, the rates in use sinceas follows: HE7 UKuble.

Thn fixc*ptlr*,yl case of non-commodity transactions la discussed belov.

Because theue official exchange rates were set with the intention of insulating the Internal economy from external influences with no regard to relative price levels, the conversion of export receipts or lnport payments Into the domestic currency, en adjustment necessary for maintaining dccmstlc accounts, resulted In foreign trade prices which bore no relation to domestic prices. In general internal Bloc prices when converted at official rates vera higher but higher by varying degreeshan Western prices. Consequently, the domestic equivalent of export,receipts was In most caaofl considerably below the Internal price of the commodity, end the opposite was true of Importhese price differentials thus resulted in price losses on exports and profits on imparts which were absorbed by the country's budget.

Because of the existence of these price differentials, end especially the negatty* differed

f en arbitrarily high foreign errhange rate. Moreover, exports to other Bloc countries as well as exports to the Vest would be "subsidized" by Cosmanlst countries in tblB sense, end necessarily so as long as Bloc foreign trade prices remained lower thanprices or member countries.

The only Bloc exports which would not be subsidized because of the artificially high exchange rate would be exports

of those commodities vbos* Internal pries In the exporting countryuol to or lower than too export prise converted Into tho doaoetla currency at official rates. Tons If tba legal price of soma raw oatariol within the) USSRubles per ton and If tola ccessodlty ear*yB, orubles, perrice loss ofubles would be Involved. This price loss is directly attributable to the useuble exchange rat* when tho Implicit exchange rate appropriate for this commodity is at the levelubles to the dollar, or.

Whether tba total of price differential looses borne by the budget la greater or lea* than th* total of profits depends oa the structure of th* internal price system of the Coamunlst country as well as on th* level of therate. If the Isolated Internal price system is such that,he official exchangehe purchasing power of the currency labut considerably more cmnnmlued In regard to some

systom, as well as its level, is distorted from -that of the world market. Under such conditionswhich seem to characterise the Internal price systems of Coamunlst countriesa change In the exchange rata by Itself could decrees* th* gross price differential loss and profit, but would notet profit or loss. ballatlcates would be one

representing the ere rage relationship between Internal ruble prices end world prices in dollars or sterling for goods enteringtrade. istorted internal prlae structure,the variation of individual ruble-dollar price relationships around the average would be large and probably skewed, resulting In sobb net price differential for the sub of price losses and profits on trade.

L revision of the official exchange rate of the ruble, which was ostensibly an appreicaticn of the ruble in tens of Western currencies, was probably undertaken for theof reducing the gross price differential profit and loss to be borne by the Soviet budget on account of foreign trade. By redefining the gold content of the ruble, its relationship to the dollar was changed froa the ecu!volanto; orubles toubles to the dollar. Ostensibly the value of the ruble wasines. SinceB revised its internalby dividing all priceshe exchange rate of the rubleasure or relative purchasing power was in fact depreciated. The new exchange rata, however, appears to be zoo re realisticcasure of relative price levels. While considerations of prestige were prcbably not absent in setting the value of the ruble higher then the dollar, the degree of overvaluation has certainly been considerably reduced if not wholly eliminated.

In setting the foreign errhnngn rate of the rubleore realistic level, the amount of price differentialcollected on Imports by the budget, and price differential losses paid by the budget on exports, vould be considerably reduced. In fact, at the nav exchange rate differences between Internal and external prices will reflect almost exclusivoly distortions In the Soviet price structure. Soviet planners ore therefor*osition to note the commodity composition of their foreign trade which Involves tho mootprice differentials end to examine the reasons for those differentials in the Interests of eccsxeda efficiency end msxlmum productivity. Although in the past Soviet planners have been little concerned with relative costs in determining the cocpoeltion of their foreign trade, pressure on growth rates will increasingly lead towardof sectors of their 'ajoonomy.

o,. Bcn-CcasaarclaAtereM^taym

lngla schedule of exchange rates, the rates being all conalataat with one another and with the rateubles to the dollar. The rates wore applicable to both ccraaarclal and so-called ncncceaBerclal transactions. The distinction between these two rests on the difference between transactions involving

-2k

consodltles and services exchangedne one outaIda tbt country end transactions involving goods and services sold to and consumedoreigner within the country's borders. CoBBsrclal transactions include the international purchases and sales of commodities end ccenodlty transport, soncceeercial transactiona include racelpta and expenditures by international tourists and by embassies, receipts and expenditures far psasenger transportation and international telephone and telegraph services, and individual and institutional remittances. Because Bloc credit transactionsorrowing and lending relate to goods end are directly effected in goods, commercial exchange rates apply both to the receipt of the credit and to the payment of interest sod principal.*

Deginning in7 Bloc members Individually announced new official exchange rates for noncommercial tn most cases, these now ratesepreciation of the Bloc currency in termsiof;western currencies (for example. Western tourists were able to "buy Soviet rubles et the rate ofo1 compared witho1nd, except for Poland, an appreciation of Satellite currencies in terns of the Soviet ruble. Some Satellite currencies were appreciated, others depreciated, in terms of other Satellite currencies. The reason for the new rates for ncmccaesirclalin relation to the West seemed to lie In an attempt on the

* Bloc credit transections almost always are credits to finance the exports of the lending country. The conodltles involved are usually valued at the prices prevailing in the trade agree sentthe two countries concerned. Similarly, repayments are effected In goods at the prices of the current trade agreement.

-

part of all Bloc membero to Increase earnings of Western currencies by encouraging tourists free the Vest. The new rates In relation to other Bloc countries seemed to represent an attempt to make lntra-Bloc settlements of noncomosrclal accounts more equitable by relating the cost of currencies to their various purchasing powers.

Whereas Bloc commercial exchange rates woreconsistent with one another and with Freethese new noncommercial rates in themselvesBloc memberystem of dual rates. Therates proclaimed by any one country representedconsistent set In relation to all Free Worlda second internally consistent sot for all Blocbetween the Bloc and the West they were not canals teat. the polish zloty exchangedate ofourposes end the

the noncommercial rate between

lotles to the ruble ratherlotles which would be consistent with the dollar rates. These discrepancies could be maintained only because of strict controls over the uses of domestic currencies by all Bloc members.

All transactions among Bloc countries are finally settled In goods- When, for example, Soviet specialists or technicians are sentatellite country, the latter pays the

USSR for their oervleeo eventually by exporting ccraxxlltles to the USSR. Each Bloc country maintains with every otheroncommercial account through uhlch the value of these non-caaTodlty transactions Is recorded. At the end of each year these accounts are balanced against one another, the net debit or credit being transferred to the commodity account for

Because of their nature ncncommerclal transactions Involve purchases and sales at domestic prices rather than at foreign trade prices and because the Internal price levels of Individual Bloc members are not only unrelated to one another but vary considerably, the previous system of clearing noncommercial balances at commercial exchange rates putisadvantage those countries whose currencies were least overvalued or whose:prices were relatively low. Since the Soviet ruble was appreciated In terms ofatellite currency but depreciated In terms oft seems likely thateffeet onn ccemodlty flows of the the noncommercial oxchange rate revisions would haveeduction In Soviet purchasing power In the Satellites

1 after tba revision of the Soviet official exchange rate, the distinctionommercial endrate for transactions with Western countries was eliminated, the new rate applying to tourist and embassy

to that of the outside world. 1 re vidian of tho basic cosEserclal rata of the ruble in terns of Western currencies was the second step In the same direction. At the least these moves are evidenceecognition of the impossibility of absolute insulation without complete cassation of all economic Intercourse. Settlement of noncommercial transactions on an equitable basis requires the use of an exchange rate which reflecta relativepower. eaningful exchange rate can serve many other useful purposes, however, and is essential for determining the relative merit of an expansion of domestic output as opposed to en increase In importsiven good. An economy committedto high growth rates must be Itrrrfrisingly ccmcerned with all aspects of economic efficiency. Including the efficiency of Its foreign trade operation.

B. Trade with Easternrom the Stick to the The Period of.thethe early pcwt-var-'perl^iSoylet f

policy was dominated by two related goals: the rapid restoration of domestic economic strength and the creation In Eastern Europeoviet-controlled buffer area to protect the exposed frontier. The immediate post-war yearseriod of plunder, the USSR taking as the victor's spoils In former enemy countries productive equipment of all kinds, dismantling factories, transport facilities,and vorshops for transfer to the Soviet Union. In addition to such

war booty, the USSR took as reparations title to such German property located In Hungary, Romania end Bulgaria, thereby obtaining control over several hundred producing ntarprises. These former German isseta provided the basis for the Soviet-Satellite Joint-stock coapsnlee, formedhrough which the USSR acquired controlajor chare of Satellite mining, manufacturing, transportation end finance Reparations deliveries from the current output of these and other plants vers important not only-.to the restoration of the Soviet economy but provided the mechanism forigh degree ofover econcede activity In Eastern Europe. East German reparation deliveriesor example, aaooated to aboutillion while roamerrlal exports to the USSR aggregated5 billion.

After theeriod of plunder when Soviet exploitation of resources

of Soviet treatment shifted to one mora' consistent with its long-run goal or consolidating its domination of the area. Through reparation deliveries and export orders,party pressures and the presence of Soviet advisors la key minis to rial and production posts. Satellite trade was redirected from Its traditional Western orientation Into Soviet Bloc channels.

Satellite economies were developed Inay as to make them dependent on the Soviet Onion for markets and raw materials. Priority development of heavy industry and neglect of traditional agricultural consumer goods production narrowed the basis for Satellite trade with the West. The economic reorientation of Eastern Europe was formalltcd by the formation Inof the Council for Mutual Economic Assistance (CEMA) to coordinateeccaxmdc plans and foreign economic relations of the Soviet Bloc.

The shift In the pattern of trade and production of Eastern Europe subjected the Satellite economies to severe strains. In addition Soviet exploitative policies and autarkic development plans overtaxed the productive resources of the area and caused much resentment against local governments as well as against 'the' USSR. 3 the new Kremlin leadership, recognising that the

ontrols and lighten its were withdrawn, discriminatory pricing practices were revised and the dissolution of the Joint stock companies was initiated. The Soviet leadership also urged some modifications la Satellite economic plans to provide soma concessions to consumer demand.

The adjustments made la Soviet-Satellite relations were not adequate, however, to reverse the growing disproportion between the Industrial capacity being created in Eastern Europe

and the raw materials, fuel, and power resources necessary to support It. Tba Soviet Union tins either had to divert increasing quantities of its own raw material resources to bolster the Jagging Satellite economies orelllte economic reorientation toward the West. The Soviet Union chose to do neither, andesult, the Initial measures taken vera wholly Inadequate to avert the further deterioration in the economies of the Satellites which contributed directly to the Polish and Hungarian upheavals in the fall

2. The Period of the Crrrot

Following6 uprisingsE soughtpolitical and economic stability to the Satellitesmajor economic concessions aafl by removing theInequities In Soviet economic dealings with severalSatellites. Concessions Included debt-,lika.

M^iinportantj1 the 8oviet 'Union egreadtto asslitJtbB>8atellite8 In overcoming dislocations caused by the Polish andevents and generally to assist their economic recovery. Thus, the Soviet Union extended large emergency credits in the form of commodity deliveries and foreign exchange (sea discussion on credits below). It also negotiated supplementary trade agreements notably with Bast Germany and Bulgaria, assuring those countries

of additional markets for the products of depressed Industries end guaranteeing them additional supplies of Industrial raw materials and foodstuffa generally In short supply.

Following the attainment of relative economic stability in the Satellites, the USSR79 renewed Its efforts to achieve economic coordination In Eastern Europe. Hew long-term eccnonle plans of theea for theere to be dovetailed with the new Soviet seven-year- Economic coordination was to be effectedector-by-soctor basis, with priority going to the development,ational or regional scale as appropriate, of an adequate raw material base for the Soviet Blochole. In support of the economic coordination program, the Soviet Union negotiatedrade agreements with each of the Satellites, In which it undertook to be .the principal supplier of Satellite Import recpjirementc for Industrial raw'materials, fuels, and fcodstaffs^'smd'ithe principal export*market foranufactures.

The USSR has since made continued efforts to strengthen the Satellite economies within the framework of the cbha. Integration program, increasing supplies of raw materials, furnishing economic development loans end emergency credits where needed, enccnn-aglng Joint Satellite Investment projects, etc.

That the Soviet leadership la new fax froa satisfied vlth the progress of the Satellite economies and the integration program Is evident in the decleion In2 toov Executive Directorate to oversee CXHA and the appolntnent to that bodyull-tiae basis of the asm who have been the chief econcede planners of the USSR and aone of theea. Indeed, the appolntnent of top-level planner* would appear to indicateajor effort will be aside to correct the "unproductiveof material resources ^vhlch7 heldo assist the limping agricultural economies of the European Bloc, and to strengthen the Soviet Bloc economy in general, divan Khrushchev's self-Imposed economic competition between Bast and Vest, the task of making the CEHA economic grouping more viable beven more urgent in the face of the rapid strides .being made by the European Common Bfonomic AssistanceVaryingkuse*of the carrot end-stick byR with respect to its European Satellites is perhaps bast exemplified by Its economic assistance policy (or lack thereof). During the first decade following World War II when unreoulted Soviet imports (reparations paymeate, war booty, profits from Soviet-Satellite Joint-stock conpanlea,ould be counted In the tens of billions of dollars, the USSR sporadically extended credits to the Satellites as an ad hoc response to particular situations.

Tho bulh of the oconomlc assistance extended by tho Soviet Union during the periodhich amounted to5 billion, consisted of credits to Poland and East Go irony. In the latter case, apparently In response to the unrest In East Germany

During the year of the revolts and Inhe USSR provided economic aid to tho Satellltea eiaountlng to2r almost as such as that

provided In the previous decade. In addition, the USSR wrote off

c

Table h

Soviet Economic Credlto and Grantso the European

Country

.K'k

, ,0

2

^Cae.^Stovakl

The USSRredit to East Germany in2 valued0 million. It la believed that this vas part of5 million credit extended

* Excluding Soviet credits for the purchase of Soviet holdings In Joint-stock companies.

various debts fcr Soviet aid extended6 sod for the repurchase of Soviet shares In the Joint Soviet-Satellite companies estimatedalue ofillion. Also, the Soviet Onion agreed to renegotiate to the advantage of the Satellites previousconcerning prices for "commercial and ncnccmserclalosts of Soviet troop maintenance, and certain transfers of Soviet property. The estimated value of these additional concessions vas almostillion. Other benefits vhich have accrued to the Satellites6 include more favorable loan repayaent terms.

eriod thus represented the pinnacle of Soviet largesse vlth respect to Eastern Europe, end it vasescue operation. Bevsrtbeless, despite the decline In credits to the European Satellites since that time, these years marked the end of gross Soviet exploitation of the area and the beginning of Soviet; recognition that^interest In the ecancel.- 1 the exception of eld 1

economic assistance to the Bloc since this period baa been In the form of economic development credits to the lesser developed countries.

k. Trade

Spurred by the "closed Bloc- policy of Stalin, Soviet trade vlth the European Satellites Increased rapidly in

tho early poet bb periodfrom0 million6 or laae than one-third or total Soviet trade to acre thanillion3 or acre than half of total Soviet trade0 nminn. tore ispcrtantly, the orientation of tba Satellite countries' trade shifted radically towardB. ke share of the USSR ranged from one-third of the foreign trade of Hungary and Poland to nearly three-flftha of Bulgarian and Albanian trade (sea The failure of the Soviet Union to provide an expanding air last for Satellite espartoeliable source of rev materials la reflected in the decline of the chare ofB la the Satellites' trade3 Since then, however, Soviet-Satellite trade hasubstantial Increase, averaging moreercent annuallyI when It5 billion (see The growth of Soviet-Satellite trade has been particularly rapid sxnae the beginning of the Soviet Seven-Tear Plan, and la expected to be:mn1 nJSlhed /throughout the period,

on

Table 5

Soviet Trade with the European

6 o 1

**al

ol Because of roundlns, ccexxajents aay not add to the totals shown.-

Tablo 6

Soviet Soars In European Satellite Trade

5

recent years, tna bulk of Em-lot trade with the Satellites bos been conducted vita tho acre highly Industrial lied countries of East Oenaay,nfl^ Poland; trade with these coinrtrlas accounts. Satelllte trade. These throe vide the USSR with about taree-fcurtho of total Soviet Imports of machinery end eculpaait. Those importsubstantial share of total Soviet requirements for tho plan goals of certainransport, motallurgy, .chemicals. By the soma tokan, thaso.sxe .the countries which accountarge share

of the Soviet fuels end rev materials exported to the Satellites. Soviet trade vlth the leaser developed Satellites of Rumania end Bulgaria Isifferent nature. Involving generally the export of Soviet manufactured goods In exchange for raw ante rials. Generally speaking, however, Soviet-Satellite trade can beas en errhmnge of Soviet fuels end raw materials for Satellite machinery and eaulpnant end finished con butt goods*

C. Trade with Chins: From the Carrot to the Stick

From the very beginning of Ccursunlst rule in China, Soviet-Chinese trade Increasedapid pace. Throughout most of the decade ofa China was the OSSB's moat Important trading partner and Soviet economic policy toward Chinareflected In the economic, technical, end military assistance provided to China byS. The keys tone of Soviet-Chine ae economic relations vas InmJox^4ndMtrlalaulpment, and technical assistance.

Such Soviet support as baa been provided for China's drive toajor industrial and political power has been motivatedesire to bolster an alliance designed to enhance the strength and world power position of the Soviet union and the Blochole. Thus, until recently, the economicbetween the two countries could be character!red as one of

rutual accomodation. The intrusion, hovevar, of Ideological and political dlfferencea Into fiino-Soviatrelations Ltd to th*withdrawal of Soviet technicians from China, Inh* resulting mistroat between the two trading partners, combined with rapidly worsening economic Condition* In China and the apparent refusal of th*oodlcum of economic assistance, (or the refusal of China to nake the Mfjobeisances which sdgnt be the price of such aid) caused mnn-iJovlet trade to decline sharply. 1 this exchange was only two-fifths of9 peak.

iew of tba ambitious Indus trlali rat ion program envisaged by the Chinese laaderablp, Soviet financial asslataace to CMaa cannot be characterised as having been extensive. While "the value of theInvolved In the projectedinstallations haslamted3 billion, thefor such of this equipment was apparently* scheduled out fof^corrent ChinesesR extended China3 billion In financial assistance, only part of which was designated for economic Practically all of these credits had been utilised by tba Chlneee6 and the Soviet equipment moving under tba technical assistance program since that ties has had to be financed out of current Chlneee export earnings. Ho other assistance was provided until iy.il whan the USSR, recognising

- ao

that China could not settle its cccuczUatcd trade indebtedhass0 cilllcn, funded thiseriod of five years. Apart from presiding will ton vcrth ol* sugar on credit, hourver, tho USSR did no thine to facilitate China's acquisition of badly-needed cccmcdlties and foodstuffs thus, tho total of Soviet credits fnetanded to Chins0 has amounted to7um roughly equivalent to Soviet credits and grants extended to the small iiexon Sloe countries oferth Vietnam, end BOrth

Soviet Tr&ie vlth Ccaminiat "

* ubstantial Incr^asm la extensions of credits and grants to these countries by both the USSR0 million) and China0 million) may have been attributable to Slno-Soviet competition for the fealty of thosehe outcome ol" the competition with respect to Mongolia appears to have been resolved in favor of the USSR as testified by the recent adherence of Mongolia to CEKA.

Year

200

UA

1*0

223

181

Th* statistics of Slno-Soviat trad* rvXlact tea vagaries ofhines* *coxeonc relations (oee Theeeelatively steady lncraase In tba voluna of trad* between these two countries9 endharp decline beginning As Indicated in tba table, th* level of trade1year low la Slno-Soviet Reflected la the trad* balance figures is th* Chines* utllliatlCD of Soviet credit* la the early period and rapayaent* beginning According to Chines* budget figures, repayments by the end0 aaooatad to0on, leaving0 aHUoa yet to be repaid.

Th* coanodltles exchanged Inhinese tradeessentially an exchange of Soviet Machinery and equipment forawand consisssr goods. This patternSovlet-Chlass* trade throughout th* period1 when Soviet exports of eoulpasnt and Chinee* export* of food dropped sharplyesult of Chineseconcede difficultlea.

f'to China dropped by0 will ton and aaounted to less thanercent of total exports while Soviet exports of petroleum, xalntelnsd at the sea* absolute Halt, roe* to slacetercent of total Soviet exports. Soviet lapcrU of food dropped alaeeto. lapart* of nacufactured consueer goods also doclinod soaavbat, but accounted for alaost two-thirds of th* totalaallar volua* of total iaports from China.

a. The Traditional Pattern

1. Unchanging CommodityTrade with

Sonetntercoarae with Indus trial lied non-Ccaaexnlat countrlaa has alwaysime-saving device, for trade baa madeapid shift froa an obsoleteodern, sore productive technologyargo nuabar of Industries. So long as soae part of the Soviet econceo* lags techncdoglcally behind the West, the USSR will always haveeedy device for buoying its growth rate. In shiftingoreore productivetechnology, the Soviet Union borrows all the resources, including tine, that nust go Into the research and davelopnent of nore efficient techniques.

Soviet trade vlth the Industrial West today com-

he same type of exchange with tho sane kind of problems as

of thes. Covist .agricultural;goods^and-row aaterlals

are exported to pay far the technology enhodied in Western machinery. In addition Soviet exports must earn sufficient foreign exchange to pay for the services of Western transport facilities and certain industrial raw materials not produced in sufficient quantity within the USSR. Any economy whose resources are' consistently as fully utilized es ere those of the USSR la subject to overt or repressed Inflationary,n the case, of the USSR represser!has long been manifest in the chronic tendency of imports

to outrun exports with the arccmpanying chronic necessity for en export of gold.

The fact that the conmodlty composition of Soviet trade with the Triatrial Vest has remained virtually unaltered over the past three decades, despite great changes in the volume and composition of domestic output. Is indirectly the result of these chronic inflationary pressures. The Soviet economy, subject to full resource utilization, high investment and rapid growth. In taut] It Is an economy of shortages, one which wesellers' market." Because of pervasive and pars latent shortages, no energy need be devoted to selling or marketing! rather, buyers seek out sellers, oftenlack market with the offer of Illegally high price b. Although the Soviets have proven themselves to be experienced bargainersituation of bilateral monopoly, they remain inexperienced sellersompetitivedifferentiatedhus, although theirown out-'

uch larger proportion of total product than Itecades ago, their exports to the developed countries of the West continue to be composed almost entirely of raw materials. The composition of their exports has been stable because they are unableor unwillingto develop the selling and service organization necessary to market their highly fabricated producta. It Is easier, and therefore In the short-runreater

return In net foreign exchangear th* USSR to continue to export th* great staple raw Bat*rial*.

2. Preference for Predictable Whrtots

There ar* in th* West highly organized mrkets (for vbaat or cotton, for exaapla) where the total volnae of the conrao-dlty purchased and add la so great, and tba nustbero of buyers and sellers active in tba aarkat so large that Soviet export* can no really be absorbed withouta flurry. In *VM',,nfl In such aarkats Soviet selling coat* ar* keptlnlsw end their net foreign exchange receipt* are that aucb larger. bor*ov*r, because Soviet exportsnail part of tho totalraded on thoseth* USSR can expand significantly th* aaount It offers for sale there without da pressing price. These aarkets are additionally attractive to th* USSR because the ability to predict With soae certainty th* Quantity that aost be sold In

foreign exchangereat advantage

raj** ^ffP"

This *aae stability and predictability characterises th* aarkat for petrol*ua, alaalnua, tin, aad dlaaonds,ffered In Increaaing quantities by the USSR In recent years. Thee* are administered aarkat* where prices reseda stable over relatively long periods of ttae and vbar* th* quantities of the coaaodlty bandied are subject to fairly rigid direct or Indirect controls administered by the sellers. In order to gain access to such aarkets, the USSR has often had to lower prices enough

to attract marginal buyara. These bargain prices have causedcaneem In the West that the USSR van atteBptlng to disrupt the order of the market. Actually,areful study of Soviet behavior In these cases indicates that after Soviet sales at bargln prices have attained the desired volume, tba USSR has Quietly raised Its prices to tba level of the market. It seeaa quite likely that no one was more surprised than Soviet exporters when8 Soviet sales of tin vera so largp as to cause the temporary suspension.of the International Tin Agree-rant. In contrast, Soviet aarkat research in such fields as aluminum, dlaaoads, flax, nacVglnc seams to have -been, of- muchhigher quality. Additional quantities of these end other materials have

been successfully seriated In the Vest, either vltb no depressing

of their iMport program. 0 the USSR has been forced to sell nearlyillion in gold to settle itslonal accounts. Soviet gold holdings and Soviet apld production are state secrets of the highest order, known probably onlyery few of the Kremlin leaders. Although Soviet spckasaen have dona nothing to discourage Western speculation of an intense hoard of

- U6

s Won cow vhlch Is annually enricheduge flow froa current output, the fact reiwlna that Soviet behavior innexkats Is not thatountry possessedarge reserve. The oasiduousneas with vhlch they have cultivated their reputation In International connsrclal circles, the promptnees vlth vhlch they have filled contracts, the eagerness vlth which they have pursued new trade contacts bespeak their long-run Interest in international trade with the West. The vigor of their bargaining over price, their attempts to tie imports totheir recent search for medium-tern credits of Increasingly long; duration, their pressure for trot -favored -nation treats-eat from the West, above all the unpredictable composition of theirarlal exports which suggests an annual harrying search for additional foreign exchange earnersall these bespeak an attempt to conserve what gold they have, in addition, gold production appeara toelatively expensive operation within -the US3H, xpensive means of settling International accounts*

It thus appears that Soviet eagerness to sell more to the Vestenuine concern about tho moans of financing their imports. Despite this concern, however. Soviet trade officials have given no indication of knowing what to do about it. The only devices for increasing sales in the Industrial countries of the Free World of which they seem to be aware are participation

In Monopolistic agreements or bargain prices. They have given no Indicationillingness to make the investment in tin* and resources necessary for successful snrkatlng of their highly fabricated goods at competitive rather than cut-throat prices. On the other hand the promptness with vhlch they have raised prices once this device has produced the desired resulttrong Indication of their interest In minimising the coat of acquiring foreign exchange.

B.- The Economic Offensive

Blnce thes the expansion of Sovietwith the underdeveloped countries of the Free Worldthe moat dramatic of the many dynamic developmentstotal Soviet foreign trade. Until the shift fromto an aggressive foreign economic policy, Sovietthese areas amounted to only about five percent oftrade, end to one-charter cf Soviet trade vlth therown to

ercent of total trade, and to nearlypercent of Soviet-Free World trade. The rapid expansion of ccmmodlty exchange betweenR end these areas was accompanied by an equally rapid expansion of other contacts, economle, cultural and political. The number of Soviet technicians working on various developmental pro>eta In underdeveloped countries has grown tohile the number of students end trainees from these

- k&

areas In schools or Institutes In the USSR baa similarly muah-roomed. Whole armies have been provided with Soviet military equipment and trained In Soviet military techniques, andof various sorts constantly travel back aad forth between the Bloc and the underdeveloped countries.

All thisery great change. Before the onslaught of the economic offensive, Soviet interest in these areas van probably equally great, but its ability to laplaaont tba interest was Halted by domestic priorities. Economic contacta vara largely confined to commerce, and i| vaa primarily the purchase of certain materialsrubber, cotton, woolfor cash. An export surplus In Soviet trade with the Industrial West was used to finance larporta prlaerily from the outer sterling area.

The Soviet economic offensive is en Integral part of Soviet foreign policy to extend Soviet Influence. The unccaxvltted and politically Unstablef which have recently emerged from colonial ruleegacy of anti-Western sentiment, have offered the Cisaaiiilsta the "weakest links" through which the political and economic encirclement of Europe and the political Isolation of the US could be accomplished. The iaandlata Soviet ambition has been to eradicate Western influence in these newly Independent areas and simultaneously to render them Increasingly vulnerable to Coaasnilaa. At the saae

time the Ccacunlata have hoped to create economic pressures In We 0tern IndustrieLiied countries vhlch are presumed to beon underdeveloped areas for markets and sources of supply.

The economic offensive hasariety of tetfibnlcues to accomplish its ends. It has been characterisedragmatic eclecticism In vhlch offers of trade and various forms of aid have been combined with propaganda, subversion and political support. It has;ide variety of arms and military eonlpment on credit, the signing of the militarybeing followed very promptly by the shipment of the equip-ment and dispatch of Soviet technicians to train the recipients la its use. The USSR has offered lines of credit for eccncmlc development,0 million atercent forears. Host of Soviet foreign aid has specified re payment in either the exports of the country or In convertible currency, the form to be dQtarmingd fay negotiation at theftlmatfepayacnt is due.

airaable as the Aswan Dam or the Bhilai steel mill, and as isodest as snail cement plants or work chops. ignificant proportion of total aid expendlturea to date baa been used to finance the services of Soviet technicians and specialists of all kinds. Soviet geologists have surveyed the natural resources of countries from Ghana and Egypt, through Iraq, Afghanistan and

.India to Hopal; Soviet advisors have been active In keyMinistries and Soviet engineers havereat

variety of industrial Installations and trained indigenous popula-tlons in their use.

The seononlc offensive has been aupportedropaganda barrage eaually diverse in Its ccanxMltlon. Radio broadcasts in the tonguee of Africa, the Kiddle Bast, Asia and latin America have multiplied in number, printed matter has been distributed directly to literate populations, bocks and periodicals in native languages have been made available to local dealers at token prices end newsprint has been sold to publisher* at prices vhlch could not fail to curry favor. Inrogram of scholarahlps for study InR has broughttudents from Asia, Africa and latin America toR since its Inception.

Although tho USSR baa eerved as the leader end prima mover, this uiugian to vln the underdeveloped countries from the Veatloc-vide effort. R accounts for about three-Quartern of the total effort, vwierpean:flateJ liltirt have supported the sovietngagedmaller foreign aid program of its 'ova, largely restricted to Southeast Asia. The eoantrles of Eastern Europe appear to participate in the aid program both on their ovn account and as subcontractors and suppliers to the USSR.

9he peek years of the Soviet economic aid program, the enphaale la Soviet foreign aid baa shifted back to military aid and technical training. Prom the

Soviet viewpoint solitary aid must acaa to yield imrinriw returna with rnlnttrm coats. First, countries seeking arms or* often deeply ertrrtiUsriispute, dooastla or farelgn, and therefore in the state of turnoll In which Corromlst agitation gains aost adharante. Second, the oalc of arms, on currant or deferred payment terns, casta tbaittle. If tba military euulpoent sold Is obsolete la tba USSR, as bos often been the case, its opportunity cost la aero, for It baa already been superseded by an Improved nodal. If the eeulpsaaxt Is In current production, than the amount provided to the underdeveloped countries la likely to bemall fraction of total output that its opportunity cost Is In contrast, the opportunities for domestic use of the resources goingodern Integrated steel plant, which are foregone when the plant Is sold on credit to another country, would be much mora significant to Soviet econoolo planners.

Perhaps of prima importance Is the potential Impactmilitary assistance to underdeveloped countries on theochealvwnass of the VestorhVaiiledbeiprcspect ofas well as an economically united Europe has notaoro inalnant in recent Booths, but nor* formidableSoviet viewpoint for two reasons. The first isevidenced -lillingncac to place ties with the sixcountries of the European Economictieo with meggers of the Ooaxpgwaalth and theTrade Area, both of which were created by the British.

British participation ulUore potent EuropMm Comrrrtty, eccoccricnlly and politically. The rwjiiiriil Una la the fact that Communist parties all orar the world are deeply dividedroups i those who favor traditional, Stalinist poll alas and those nco-clwnajjajats of the Cctszuniot tsDvanent who support Burushchav'revision of the Doctrine, the approach to Western unity could not cobsore uncomfcsrtable tine for the Kremlin loaders, struggling ae they areracture la their erstwhile aonollthlo body politic. Thus Moscow, while noting to reinforce the eooncedc sad political Vnlff existing In Eastern Europe, woulda special prsraliga In any current development vhlch id got promote dlvleevness aaong the Western allies. If tho provialon of arcs to Indonesia could so exacerbate the West Irian Issue as tout between the Dutch end their Western allies, Hwicov would undoubtedly consider the rewards aaple to cover its costs. AndIfa tion of "tdt'n range tJaa^OiJi on the-island of vrCubm'cooldnaake the LBIhi^.worldn itimbm would be coneldered irrelevant,

Soviet Bloc trade with the underdeveloped countries has been stimulated both Indirectly by the existence of Soviet old end the fact of more extensive ocartaets and directly by Soviet end Satellite offers to buy end actual puirvhesee of the major exports of these countries. The Soviet Bloc baa sccartinea contracted to buy nearly the entire annual production of the single

or moot, important exportountry dependant on expert receipts, and has tlncu tho offer to coincideeriod when the vorld price of the ccvsoodlty was especially depressed- In this way It has bee coo the major trading partner of Guinea, Egypt, Hall and Cuba* It has further signed lemg-term trade and payments agree-meats providing for the barter of raw material exports against Soviet fuel and capital goods. Such agreements are especially attractive to the underdeveloped countries vhose Imparts of capital and oonaucEr goods are dependent on export receipts vhlch haveather violently vlth the vorld price of their export commodity*

esult Soviet cccxaodlty exchange vlth thecountries has grownote ofear Cotton, rubber end sugar account forercent of total Soviet Imports from ths se countries. Soviet exportsimilarly concentrated commodity composition, with machinery endpetroleum representing one-half of the total. RoughOyi- two-fifths of Soviet exports to these areas represents credit financed exports moving under the old program uhlle aboutof Soviet Imports represents repayment of past credits, mainly military.

Sable 8

rad* with underdeveloped Countries1

Ml lions of Dollars and Parcent

Kxnortn

and Koulpoant

Flants

and Petroleum Frcduets

l^rroua Ifatala

and Wood Products

Imports

natural

'

Hrtalo

aaxcbaodlae

pattern of Soviet trade vlthln tba underdeveloped areas

in part reflects the concentration of the Soviet ocoaomio offensive. Five countries have receivedercent of total Sovietold while the entire program aaaaaawaj two dozen recipients, the

Table 9

KconooilG Credito and Qrenta" axtoaded by the USSR to underdeveloped Oountrlea a/ January2

Million

100

300

180

Latin Aaorlca

Argentina Cuba

Kiddle Bant

Xrag,

Syrian Arab

United Arab

25

95

Sccnli

0

5

10

35

Iceland Tugcelavia

80

e. Data are rounded to the nearoot five.

- 56

5

greater Importance of latin America in trade than in aid reflects the la ok of receptivity on tho part of eountriea in the area (excepting Cuba) to Soviet aid offara. Soviet Interest in the area, hovovor, is'indicated In the vol una of ecenerce. Tooof aid and trade among Individual countries is ineflectionew large aid contracts. During thehen Soviet materials were boing delivered for tbo construction of the Bhilai steel plant, Pali" laporto from5 acre than tripled in value. Toe period of heavy deliveries of Soviet goods for the Aswan Dam began

Table 10

Motributlon of Soviet Foreign Trade1 and Aid with Free World underdeveloped Countries

Million of dollars and roroant of Total

Concentration of Sovlat oldew countries reflectn also aa Incraaalag selectivity on tho port ofR. Although atd hus always been concentratedeu recipients, in the enrly yearo of the nrogram, its scope end distribution ware probably more limited by lacs of receptivity on the part of the underdeveloped countries than by Soviet choice. As the program boo grown, as projects have beenmplemented with no nore then normal delays and missteps, and above all since the Soviet sputniks have endowed the USSBew aura of strength and raapectshlllty, the number of countries willing to accept Soviet aid has also grown. The degree of concentration, however, has remained shout the soma. At present the Soviet aid program is concentrated In countries of strategic geographic location Ilka Afghanistan, strategic International significance like India, or countries considered ripe forike Cuba. Tor example,0 when the Castro regime in Cubs adopted anforeign policy, and nationalised the means of production, mora than ons-quartar of total Soviet old extensions has gone to Cuba alone.

Soviet foreign old has become an accepted fact of

la the underdeveloped world; in fact. It is generally,abilityto provide up-to-date industrial equi patent and training of all kind a. Since it has established itself, the USSR can now afford

to bo aaro aelectlve In dispensing ito munifloenee. Ittaly that in tho future the Soviet oconceda aid program will ebb ead flov in intensity, continuing at loss than peek levcOo until tho USSRev opportunity for an Important potontlal addition to thofold.

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Allen, P. Soviet Econonlc Uuftn (Pdbllc Affairsu2>my, ii. Ooextstapes: Icononlc Cfcallsage and Rsspons* (Rational

arllnsr, J.ortvt Boononlc Aid: Ins Bsv Aid and Treda Folic/ in

Uhdsrdsvnlapsdbsrriator,xsnlnttan and Tscbnloaas of lomipi Trad* of

B8BR (Translated fron Russian by Joint Publication Research

SsiTlMtS; OV,

Oorjwnr,i, edi. Forelan Trade of the OSflH nlth the Socialist Countries (translated fran tfas Russian by the Joint Publications ResearchPBS

. Ths fhwllsngs oftudy of Soviet BcononicI Public Affairs

o3'inaneinsVo rid 'Trade vlthirw -

. f' " FS*

_ (Wacrtoa Oalverslots, a. end Donnelly, D. Trade with CCountries,

pulbnr, B. lbs Bconcndca of Coaamlst Ksstsre Europe,ongress, Joint Boononlc9 (Conparleon of ths

United States sad BoTlst Economies,ad. Deparfeaent of Stats, The Slno-Sorlet Economic Of renalvn In Less Developed Areas. Pabllcstlons

U.S. Daparteaat of State, Ci.iawm1.at Ecoocatle Policy la the Leu Dmlopad Aim. Publication rinting

Vesalakl, J. B. 0at Ecoooadc Strategy: Tba tola of East Cantml Boropa (Batlnaal Planning

Aysenberg, I. Koryy Valjutojy Kara Bublya (Bar En-hang* Kate of tba

ray, L. I. MBxbdtmArodnyyei own al roranlya Vmtsliwj

TursorU Botalaliatlebaaklkh fltraa (International BattlinU and

F1 Bearing of Foreign Trade of the Sodallatoecov

t.

Oenkln,eguiiroraniyo Vaeahney Toraprll SSSR (Legal Ragnletloo of USSR Foreign

Kovrlsbnjtn, H. F. and Btepenor,nsa&nysya Torgorlja Stre* Karodaoy DeankratU (Foreign Trade of toe People'*

Larrlcbenko,ta*ndebesfcoye68SR soetinatoy Aaerikl (EeoaoKtc Cooperation of tna USSR with the conn trios of Asia, Africa, and Latin Aaerlea)

Him .try of Foreign Trade, OSSR Vneshnyaya Torgprlye

gody,.Btatleticbeekly Bbornlk. (Foreign Trade of the

Klnlstxy of Foreign Trade USSR Vneabnyaya Torgovlya0 god, Statlvtlebeekly Obior (Fox^lga Trade of the USSRosoow I'M.

Ministry of Foreign Trade USSR Vneafaayaya Torgorlya1 apd, StaUatlcbaskly Obsor (Foreign Trade of the USSRtatls-tloal

Serscyer,talSDpcaDabch' 8tran SotelaUatichastaao Ugnrya (Economicanal*tanc* of the Sociollat Camp

Bladrovaxiy,cberkl XKoncadcaeaxlxh Ctnoaheniyltayan (outlinea of th* Economic ReUtiona of tha DSSR withT-

SeOeeted leeoaa of tha Soviet nrnttblyaeannyayn Tccrgrrlvn (Poreianoygoey nrararlrl (Problems ofredlt IHmj madrovnjnaaawhnarodnyya Otaoahaolya (World Ecmcarr and Internationalnd others ma well aa thea was Prsvda. Isvertlye, and BansKsslcbesfcaja Peseta

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Original document.

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