Foreign Relations of the United States, 1977–1980, Volume III, Foreign Economic Policy

267. Briefing Memorandum From the Director of the Policy Planning Staff (Lake) to Secretary of State Vance¹

Washington, June 17, 1977

Prospects for Expanded Soviet Bloc Role in North-South Problems

Summary and Conclusions

There are two contrasting motives for encouraging the Soviet Bloc to play a more active role in North-South problems,² particularly in various measures for economic development, as you suggested at CIEC:³

a) to elicit a genuinely cooperative effort on the part of the Soviet Union, with the aim of maximizing the positive role they have to play in Third World development and dampening East-West political competition; or

b) to silhouette Soviet inadequacies in contributing to Third World needs, with the aim of revealing the gap between Soviet rhetoric and reality and exposing the Soviets to criticism on the part of the developing countries.

The relative weight to be accorded these motives shows up when the complex of North-South issues is broken down into its components: negotiations focusing on the International Wheat Agreement,⁴ other individual commodity agreements (except coffee), aid for basic human needs, and the producer-consumer dialogue in energy offer some promise of success in integrating the Soviet bloc into the North-South dialogue in a constructive way.

On the Food Aid Convention,⁵ IFAD, general bilateral aid, multilateral development efforts via the UN, trade, and technology, in contrast, it will be extraordinarily hard to move the Soviets into a pattern of positive contribution. But it should be relatively easy to expose the dismal Soviet performance to Third World criticism, without our appearing to conduct an anti-Soviet campaign.

The United States need not choose definitively, between the two approaches. Rather, it can explore both options without foreclosing either.

But there are limits to how much we can expect from this effort. While some Soviet officials have recently been throwing out hints of greater interest, Moscow’s official position is that it wants no part of the “North-South” dialogue as such; that it is a false way of looking at the world and that the real division—between capitalist and socialist countries—puts them squarely on the side of the developing states.

Beyond rhetoric and ideology, the Soviets have not wanted to dilute the political impact of their assistance by subsuming it within broader efforts by the industrialized (read Western) nations. And they focus more on arms and military equipment than on economic aid. This gives them a short-run political impact disproportionate to their outlays, and leaves Western countries shouldering the more important, longer-term economic aid burden.

Finally, we should be under no illusion that LDC pressure on the West springs from a notion that the Soviets wear white hats and we black. It reflects, instead, a realistic assessment that we have most of what the LDCs need, and are more likely to give at least some of it.

Thus, whether we get the Soviets to cooperate in the North-South dialogue or merely score propaganda points off them, we should not expect it to lessen LDC pressure on ourselves.

The Issues

1. Agriculture

(a) International Grain Agreement

This fall the United States wants to begin negotiations on a new International Grain Agreement. The Soviets want an agreement that will produce stable prices, but have been reluctant to sign an accord that requires reserve stocks. To ensure food security for the Third World there must be grain stocks. The Soviet Union must bear central responsibility: variations in Soviet grain production currently account for about 80% of worldwide production variations. And if history is a guide, the Soviet Union will probably encounter serious weather problems in at least one or two of the next five years. They have an interest in getting an agreement to give them some security on price. Pressing them on the need to contribute to protection against starvation in the Third World might push them over the top toward making a commitment on reserves. Probability of success: moderate.⁶

(b) Food Aid Convention

This fall we shall start negotiations for a new Food Aid Convention, which will consist of pledges by member countries to donate an annual minimum amount of food aid. The Soviets have not been a member in the past. This year we could seek Soviet membership. Probability of success: extremely low. Prospects for shaming the Soviets: good.

(c) IFAD

IFAD is a fund to finance agricultural development in the Third World via projects carried out by the World Bank, regional banks, or FAO. The Soviets have not promised to contribute. We could press them. Probability of success: almost none. Prospects for shaming the Soviets: moderate.

2. Commodity Agreements

The Soviets are already a member of commodity agreements—cocoa, tin, rubber, and sugar (now defunct). To have successful agreements on sugar, copper, and eventually other materials, we shall have to insist that they make their bilateral agreements public (e.g., Cuban sugar) and that they include intra-bloc trade as part of the world trade for purposes of market control (e.g., copper shipments in Eastern Europe). Probability of success: moderate.

3. Development Assistance

(a) Basic Human Needs

There are some specific areas in which the Soviets might be able to make a productive contribution to development assistance in cooperation with American aid programs. One is the training of paramedical personnel, where the Soviets have a comparative advantage and the South has a great need. Other areas for US-Soviet bloc cooperative aid programs in the “human needs” category might include: a) water treatment; b) waste disposal; c) joint research in host countries on tropical diseases; d) responses to protein deficiency; e) immunization; f) clinics and low-cost health delivery systems. (Note: Cuba has an outstanding record in organizing and managing programs, especially rural programs, in many of these areas.)

The US Congress might not like the notion of joint ventures, especially with Cubans. It might be well to begin by adding LDC needs to the agenda of ongoing US-Soviet exchanges on, for instance, agriculture, housing, and medical subjects. Probability of success: unknown.

(b) Bilateral Aid

The process of assisting developing nations to higher levels of economic and social development has been and still remains primarily a task undertaken by the industrial West. Assistance from the Communist countries has been small ($1.7 billion in 1975 from the USSR and Eastern Europe); repayment terms are frequently stiffer than those asked by the West; there are fewer outright grants; most of the poorest countries are not included; the emphasis is on showcase heavy industrial projects at the expense of light industry and agricultural programs; all aid is totally tied to procurement from the communist states; and aid is highly concentrated in a few countries in which communist nations have strong political interests. It should not be hard to heighten Third World consciousness of the fact that the Eastern impact on the fundamental development process has been negligible, or to stimulate Third World spokesmen to make demands upon the Soviet bloc that will only be met with rejection. Probability of expanding Soviet bilateral aid in a way harmonious with US interests: nil. Prospects for exposing Soviet shortcomings: moderate.

(c) Participation in Multilateral Development Efforts

Soviet contributions to the South via the UN system have almost invariably been in non-convertible rubles. A major part of the recent UNDP funding crisis was due to the unusable supply of rubles held by the organization (a point successfully exploited by the US delegation). We could give strong public encouragement of greater Communist contributions to those UN multilateral assistance programs such as the UNDP and UNIDO where the Bloc wields influence not commensurate with their financial participation. Probability of success: low. Prospects for exposing Soviet shortcomings: moderate.

(d) Membership in the IMF

While the IMF plays a large and rapidly growing role in lending to the LDCs, the question of Soviet participation goes well beyond the North-South dialogue (conditionality of loans to Great Britain and Italy, stability of the international financial system). Unless one were to relax the conditions of membership drastically, the possibility of Soviet membership would seem remote: members of IMF are generally required to refrain from imposing restrictions on international payments, to avoid discriminatory currency practices, to make their currency convertible, and to furnish the Fund with information on international reserves, trade, payments, exchange rates, domestic production and price of goods and services, and the production and import and export of gold. Moreover, membership in the IMF should require a large Soviet capital outlay. To make the exceptions required would be a large task, with few if any positive implications for the North-South dialogue in return. (Romania is the only bloc country that currently is a member of the IMF. Poland is considering joining.)⁷

At least as important as Soviet willingness to join the IMF is our willingness to have them. They might well work from inside the Fund to change its rules and generally create obstacles to its operation.

(e) Membership in the World Bank

IMF membership is a precondition for joining the Bank. One could, however, make some major exceptions (see above) to get the bloc countries in. This would be a great leap forward for the Soviets into the North-South dialogue. They would gain the prestige derived from “association” with all of the Bank’s projects and relieve themselves from much potential Third World criticism for their stinginess toward the South. What they could contribute to the development of the South other than (perhaps) a small capital subscription to the Bank is unclear. Moreover, in general, the Soviets have not wanted to “dilute” the impact of their own aid by channeling it through multilateral institutions. (Romania is the only bloc country that currently is a member of the Bank.)

Prospects that Soviets will join IMF and IBRD in the foreseeable future: remote.

4. Trade

Soviet trade with the Third World is small, accounting (even prior to the 1973 rise in oil prices) for less than 5% of the LDC’s total trade turnover. The composition of trade—Soviet manufactured goods in return for Third World food stuffs and raw materials—has the effect, in the words of a non-government specialist, “of perpetuating a trade pattern which in another context the communists label ‘imperialistic’.” The United States could easily be more vocal in linking G–77 demands about opening industrial markets for manufactured goods to Southern exporters, and about untying commercial credit to finance trade, to poor Soviet bloc performance on these issues. Probability of success: nil. Prospects for exposing Soviets to criticism: moderate.

5. Technology

In those countries where the Soviet Bloc does have active aid programs, the technology offered tends to be both capital intensive and obsolete, that is, “inappropriate”, by the standards of the Third World. We could exploit this point more vigorously in those North-South forums (UNCTAD, UN Center for Transnational Enterprises) where appropriate technology is discussed. Probability of inducing change in Soviet behavior: zero. Prospects for criticism of Soviets: unknown.

6. Energy

It has traditionally been assumed that the Soviets could only make mischief over energy, favoring higher prices to benefit their own oil and gas exports and giving rhetorical support to the demands of the more extreme OPEC and G–77 members. (See 1976–77 Transition Paper for example).⁸ Although the CIA predicts a drop off in Soviet oil production by 1985, it is not certain how this, if it occurs, will affect Soviet energy policy. There might eventually be an opportunity to bring them into a producer-consumer energy dialogue on the side of the moderates (and in opposition to Iraq and Algeria.) Probability of success: wholly unknown.⁹

1. Source: Carter Library, National Security Affairs, Staff Material, Office, Outside the System File, Box 48, Chron: 6/77. Confidential. Drafted by Theodore Moran and Jenonne Walker (S/P) and concurred in in EB, IO, INR (draft), and EUR/SOV (draft). Vance forwarded this memorandum to Carter as an attachment to a June 26 “Memorandum on Some Possible Measures for Stabilizing US-Soviet Relations.” (Ibid.) Carter wrote at the top of the page: “Some good ideas. J.”
2. In a May 31 memorandum to Carter on “Patterns of Communist Aid,” Brzezinski discussed the provision of military and economic assistance by Communist countries to non-Communist LDCs. (Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 12, unlabeled folder)
3. In his May 30 address to the CIEC, Vance asserted: “We believe the industrialized Communist countries also should increase their development assistance. We are prepared to join with them in such assistance, when and where they are willing to do it.” (Department of State Bulletin, June 20, 1977, p. 646)
4. The International Wheat Agreement, first signed in 1949 by 42 countries, including the United States, regulated wheat prices and sales among its wheat-exporting and wheat-importing signatories. In 1971, the United States signed a later iteration of the agreement.
5. The Food Aid Convention, which was concluded in 1967, set guidelines for the granting of food assistance.
6. Carter wrote “Let them know the consequences of not cooperating also” in the margin adjacent to this paragraph.
7. Carter wrote “Let’s concentrate on satellite & other socialist countries first” in the margin adjacent to this paragraph.
8. Not found.
9. In a June 27 memorandum to Brzezinski, Thornton characterized Lake’s memorandum to Vance as “a sensible and basically negative piece, not very imaginative” and stated that his “main criticism is the persistent concern to use North-South fora to ‘show the Soviets up’. We should not get involved in this. They are doing a fine job on their own in this regard and we will unnecessarily cheapen ourselves if we start making propaganda shots. It is also likely to deflect us from more serious matters.” (Carter Library, National Security Affairs, Staff Material, North/South, Thornton, Subject File, Box 101, North/South: 2–12/77)