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Published online by Cambridge University Press: 18 July 2011
THE new Soviet diplomacy in Asia involves an active effort to extend economic aid to a select group of countries who qualify as non-allied with the United States, or, in some sense of the term, as “neutralists.” To date, the Soviet Bloc has made aid commitments in South and Southeast Asia of over $500 million to India, Afghanistan, Indonesia, Cambodia, and Burma. Virtually all the aid has been committed in the past two years; most of it since early 1956. TABLE 1 shows the size and character of the commitments.
1 In the interest of brevity rather than accuracy, the entire area will be referred to as Southeast Asia. There is some question whether Burma belongs on the list at all. Soviet aid to Burma, though formally announced as a “gift,” has been accompanied by an equivalent “gift” from Burma to die Soviet Union of an “appropriate quantity of rice and other products” (Burma Weekly Bulletin, Rangoon, V No. 1, April 5, 1956, p. 1).
2 It has also been reported that Communist China agreed in October 1956 to a grant of $12.9 million to Nepal. Since the report is not confirmed and details are not available, the grant is not included in the table. The remainder was committed later in the year. Repayment terms are not available.
3 For amplification, see the author's Economic Development and Mutual Security, RAND RM-1778-RC, August 14, 1956.
4 While the term unfortunately has pejorative implications, it is used here descriptively, not normatively.
5 At least one reason for doubting this latter eventuality is that to date the relatively much greater dependence of neutralists on Western aid and sources of supply has not seemed to influence their behavior toward the West.
6 Clearly, the loss could be eliminated by scrapping the excess capacity provided by Soviet largesse. The recipient, however, may not do so—and may not be expected to—either because it mistakenly estimates that future income from the equipment has a present value exceeding the loss, or because it is unaware of the doctrine of sunk costs.
7 It is by no means impossible, for example, that some of the Soviet “aid” projects in Burma, e.g., the sports stadium, hotel, and theater, may have this effect.
8 Recently, Burma ordered for immediate delivery 60,000 tons of cement—a year's supply—from the Soviet Union under their bilateral trade agreement. The arrival of the shipments at the beginning of the monsoon season, and Burma's lack of storage space to receive it, resulted in substantial losses. The Burmese hold Soviet promptness to blame, and this is probably one factor in the recent stiffening of Burma's attitude toward the Bloc.
9 It is also true that trade with countries outside the Bloc may reduce the strain on other sectors of the Soviet economy. If food and other agricultural products are in relatively short supply in the Soviet Union, there is always an opportunity for a profitable exchange, e.g., of Soviet capital goods for Asian rice and raw materials, quite apart from aid. The gains from trade should not be confused with the gains and/or losses from aid.
10 In the case of loans under the Mutual Security Program, the repayment period (forty years) is so long that the loans are probably already at least competitive with Soviet credits. Cf. Jones, Howard P., “U. S. Economic Policy and Programs in the Far East,” Department of State Bulletin, XXXV, No. 904 (October 22, 1956), pp. 640–41.Google Scholar
11 The condition might instead take the form of a less active participation in the pact by a potential recipient of Soviet aid.
12 And also on how much of a difficulty, e.g., in terms of resource burdens on the Soviet Union or intra-Bloc frictions, we think would be created for the Soviet Union if its offer were accepted.
13 The point can be represented in an idealized way by the following diagram:
The horizontal axis represents the size of the inducement component of U.S. economic aid to a SEATO member. The vertical axis shows what the SEATO country nets from membership in the pact. If membership entails some incremental costs to the SEATO country (e.g., an amount of dollars equivalent to OA), then the inducement component must be OA as a minimum. Assuming the U.S. places some maximum value OC on the country's membership in the pact, the maximum the country can net is shown by CE, the intersection of a 45° line drawn from A, with the “SEATO-country-nets” axis. The actual size of the inducement component will be negotiated along the line AE.
If now the SEATO country is confronted with an opportunity to receive Soviet aid in an amount equivalent to AB if it withdraws from SEATO, then the minimum inducement component becomes OB, and the maximum the country can net—in the sense of what it gets from membership above the price of non-membership—is CD. The actual amount received will be negotiated along the line BD.
