Directorate of InielUgciKt
The Soviet Release of Defense Spending Data to the United Nations: Less Than Meets the Eye
This paper wsj prepared by. it
Office erf Soviet Analysis, with contribiitkms by
SOVA-
The Soviet Release of Defense Spessdixtg Data to the United Nation Lena Than Meets the Eye
Onhe Soviets submitted to tbe United Nationsof9 defense budget Intorimary dementiUN*"accounting lyitem.he first time
tbe Soviets have provided defense cixCTOatrircs by force structure and categoryapons procured, and the release of the new data appeared oo tbe surf ace to be an Important step toward achieving the Soviets' stated goal of making their published defense budgets cotnrxuable to those available in the West. Our analysis of tbe new figures, however, shows that tbe additional data raise more ootxerns than they resolve.
Despite assurances by SovietMarshal Akhrotoeyev as late as Januarythe budget snbtnittcd to tho United Nations isn "form, volume, ando the US defense budget, it is not As soon as the budget appeared, it was roundly criticized in the West and also within the USSR for not capturing the full cost of Soviet defense activities, primarily because of incomplete coverage, suspect accounting practices, and artificially low prices for weapons and equipment
ublished defense budget will be accepted aa accurate, the Soviets need to convince the international community that they areomprehensive and consistent definition ofis. that no activities includedtandard definition of defense are exclodod and that theset of activities included does not change over time. Further, beforeudget can be considered indicative of the real Sovietommitment lo defense, the prices paid by the Ministry of Defease (MOD) must be changed so theyore direct relation to the value of tberesources consumed by defense activities
The Soviet defense budget submitted to the United Nations coo tains serious problems in three areas:
Inconsistent data. The budget figure submitted to the United Nations for spending on weapons research and dCTdopment is substantially less than that originally claimed by then Prime Minister Ryzhkov inur analysis indicates that. In previously released defense budgets, expenditures for KQB border guards and other paramilitary troops probably were "hidden" in tbe research and deveJopraent component
mi
Incomplete data. Soviei offidnls hive lUled that ibe budget exclude* many research aod dervelopcneni activities that have both dviliin aod military applications. In addition, no expenditures appear to be Locludcd in the budget for transportas trucks, military transport aircraft, and naval transportthey have been mis-das-sified as "other equipment."
Unrealistic prices. The MOD continues to pay artificially low prices to procure weapons. We estimate the real resources used to procure missiles, ships, and aircraft are far higher than the figures the Soviets presented to ihe United Nations
We believe the Soviets will be susceptible to international pressure to address the issues of consistency and comprehensiveness In their budget. If tbe Soviets continue to provide data on future defense budgets to the United Nations in the same detail ashey have promised towillrack record that tbey will have toThis, ia torn, will make it easier for the international community to bold tbe Sovieta accountable for such issues as the mrsdassification within tbe budget of paxarriiliury and possibly naval infantry forces and the apparent exclusion of transport equipment.
However, unless the Soviets eliminate the high subsidies supplementing the prices the MOD pays for procurement, even very detailed defense bod gets will remain seriously flawed. The Serviets claim tbey are dramatically increasing defense price* this year, but the bulk of any such change would probably be driven by the economy-wide price hike implementedpril
and would leave subsidies, intact. Moreover, until they abandon the practice of setting prices by administrative fiat, prices will not accurately reflect
real resource costs
Tie Soviet Release of Defense Speeding Databe failed Nations: Less Than Meets tbe Eye
Wall
The SovkU first publicly admitted In? that tbatr official defense budiet. aentry to. tbe state budges since World War II, did aot coverdefease (pending. At that lime. Deputy Foreign Minister Vudimir Peuovsklyscsaagc from President Gorbachev io the UN Conference oo Diur-mazacat stating that it would be possible toiC military (pending realislkaUy- esnce ibeimpttmxaicd price reform. Petrovstay claimed7 defease budgst et* MJ belttoe rubles iadwded ceJj personnel, operations and mint mince (OfiMV and military construction costs. Escrsdcd wereoo research, dcvcloprrteni, testing, aadfRDTifc) aad weapons procurement.orbachev pledged defense spending data would be released In "two or three years."
Subsequent Soviet statements seerned to reflectover when the budget dau were going to be released. Inoviet economist Leonid Abalklnisiting US Congressional delegation that tbe Sovieu wouldetailed defense budget by the fall ofbe did not specify what information the budget would contain. That sameoviet ofl-.nl at tba Conference on Disarmament ininted that worfc on Soviet defense budget dau could be eorapaetcd by the9 arasion of the UN Cearinsisaioe oa Disarmament (UNCDk but he could not confirm that the Soviet prescnution would conform to the UN format. By early May, however, the Soviet permanent UNannounced to tbe UNCD that the Soviet Union wcjJd not submit iu military budget inwith the UN ilandardiied accounting system until the *Jth session of tba UN General Assembly, scheduled for the fall0
Just three weeks later, Gorbachev- apparentlyto both domestic and foreign critkiim over thebil!ton-rubic figure for defense con-Uined in the draft budget forthat
the revised defease budget wasillion rabies. Scon afterward, then Prime Minister Ryihkova breakdown of the budget by major resourceILDTAE, personnel aad OakM. ceassuuetiou, pecanooa,eapons. Inecaerul Babrrrofthe Ministry ef Defense (MOD) Finance Directoratetwo additional figures specifying the MOD's anbury aad90 payrolls. On ISctrmsUyreakrlcywn of the Soviet Union'sauaaa9 defense budget asrng the UN's atnndardired militaryi)nuri (hat thefor the first time, included Information on military eipcnditurcs by both resource category and militarycomparable ba prvxision tolo the United Nations by the United States and other Western couatrlra.
What's NawT
The actual defense budget daU the Sovieu presented to the United Nations arc shown In Uble I; very Little of tbe information was previously released by the Seniors. Tbe greatest number of pew dau points arc in the procw email area, which provides an eatensivc breakdown by type of weapon system and branch ofhe new data include service breakdowns cf
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ready rdeaied total figure, for major fpeodingceeratiag costs, andiotno new detailed data on procurement. As In the US data submissions to tbe Unitedwhich tbe Soviets said their budget was coorparable in
form andcolumn on strategic forces was left blank. The Soviets stated in note* that aexootrnmied the data, however, that spending for the Suategk Rocket Force. (SRF) and Air Defense Forces was included under the -Other" column. They
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alio wrted lhai, bcoauac some imitate prog rami were irxJuoed to each cf the services, spee-ling on the SRF aad Ah Defease JWb should not be ecus ted with total [pending cat sua tegkflrura (bey claimed waa Impossible to calculate.
are cUflrxeacea betvreea9 defense bead-get presented lo the United Nation* and9 defense ipeodirj hguree anncenced by Ryxtiov Inhhouga iha cwerallbOlioatho same, lhe figures fee mos! of the major rescairce catta-orie* are different. The subataatlal eUf-fercacc between the RDTAE cotiipoacnt aubtotaia of the tu* budgetsthatenditorea originally were indiided Ln therpeoent ofkc-f course. booocnurtiag afaahM wouM ctissl
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1 between tbe Ryzhhov budget and theabmittad to tbe United Nations once the UN dau are reoatrstortzed forith the Rjihkov daU (acebe figures for procurement, endear vmbeads, persoand and OAM. and rartalce* areeoashnent,ligtie between the two cesBStrucsioo spcradiag figTira may refkethange brt-eea budgeted and actaal rpeedihg-
Aa alternative,eas probable, rarjsLfaatkm for tbe RDTAE discrepancies fat that panurdtiury expenditures wcra not Initially included to tbenllMereubie figure. Under thishe Sorl ess, having decided to rttaia aa overall control figure ofillion rubles, neededdjust one ef their
subcategories aad chose RDTAE, If raramihury espeadirares InJtiaOj .ere mduded. tow. hi. tbe Soviets need not have madenrury arbitrary
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forces they reported to the United Nation* waa to addition to theiUien rubles for defense, aihee there is wide latitude to the UN accounting guidelines for categorising paramilitary expenditures as either nsOiury c* cMl to una% h
the Seanku" barseTiag of this issue itra ma the credibil-ity of Sestet preascuneerrsenu oa RDTAE |
Thehar reference9ubtotaia was provided by Colonel General Babyev tohen be reviewed0 defease budget. This budget Is roughly comparable to detail to9 defense budget annotsnced by Ryxhhov. that Babyev broie down civil and military
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trending9 to beillionr> our earlier analysis, wc assessed thatbadbT^^
Soviet figure ofillion rubles are tbe
trsflluryhe additional detail la the Sovieta' budgethe United Naiiooj ba* eoablod ua to identify more pre-coverage and price problem*.
We hava compared our detailed estimate, with the Sovietn effort to asset, tbeae proUerns (sea figure IVeasonably cieae fii rxtween the Sc-iet budget and OA estimate* far military pay Urge eBflcrTOce. esAU. however, between the Soviet budget for aad CIA estimates of RDTAE and proenro-
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Despite assurarscc* by SonetMar-khal AhJiromcyev ashe Soviet UNornparable In "form, volume, and makeup" to the US defense budget.ot Aa toon a* the budge* arsprared, it was roundly criticized In Ihe West and abo within the USSR for not capturing the full cost of Soviet defense activities. Tbe Intelligence Community tuts assessed total Soviet
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The Soviet trub'Uryudget9 submit-led to the UnitedbUlionas than half of the CIA estimate of Soviet RDTAE espendiiureshile part of this difference could reflect tbe lower cost the Soviet. aUaco to tome activities, the primary reason for the Urge difference appears to be related to coverage. In discussing9 budget before the US House Armed Service* Corrrmittee, Marshal Akhrrsmeyev sUtedesearch activities that I
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Coverage differences also ciisl for some cstegor ies of prrxurcraeot. Our analysis indicia that tbe Sovieu omitted pereiases of almost all rniliuryequipment from their budget tubcnission lo the United Naticasa Tbe Sorset defense bodge,o MOD tipeaditares for its cks ciccptery mi rice purchase for parsjrsbtary use. Unless tracksfor the rafliury scolcea -ere dai*,fied ebfler-eatly from track, rwensied for the rauaaaititary icrricea perhaps mlsciassirscd at -other oqalpmeoi" Instead ofcquipmcwereoutride the MODf mui-lary transport beiicopten and aircraft also werecollide the MOD budget, ibis could help
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captain, ia part, the extremely low figure claimed for aircraft expenditureshis may alio be (be case for purchases of naval transput auxiliaries. The SovieU apparently classify military trucks, military transport aircraft, aad naval transport auxiliariesoods when aianufacturcd.' '
Cqalpmeat for the naval infantry is another potential omission,9 this forte -as ia the prcoeaa of replacing hirmored personnel1 BTR-JOa. However, the budget daU do not list any Navy purchases of armored vehicles. Although there are roeuole reasons forBTR-gOl could have been paid for by the Navyrevious year or purcbssed by the army aad then transferred to aaval Infantry none are compelling.
Vladimirpokesman for military reform advocates, has stated lhat some defense activities such as peeird action training. transporUtion, aad housing ate not charged against ibe MOD budget, bul rather paid for by the republics ande also claimed that tbe MOD uses its proGimakini activities for additional, off-budget financing. It It duTVcull to judge Ibe eitent and value of the services provided by the republics and localities because lhe Soviets did not ipecify what activities were included in ibc services and support budgets. However, KtaimAya rsvrdn. the Soviet military newspaper, did suggest the scope of Prestocking by military units. It reported in0ingle air transport regiment earned0 rabies tut year through iu civileraiiossj aad added thai llac balk of thearnings were turned over to the lute badger- Iforrect, such revenues may be "netted exit" by the MOO and thus nothe state budgets line entry for defense.
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Sxtsrct
Price*
Tbe CIA eallinstc of (be value of mUiUry equipmentwice tbe octrrcerxmding figure ba tbe Soviet budget. Tbe aula reaaoa fee thbhat the MOD para prof ercoUal prices that fail to capture the faD costs offact frodjriai" led gee! bj the Sortcti" Id bit commentary oboviet defenserofessor Raytberg OfBcotsaouc Scassstaac Ressearob lastittrte cf the USSR State ITacoicg Owunattoe (Ocaptaa) statedmstaSab are delivered to the mililary depart-7xr.ii at apccialarshal Ahhrorneyev ta hb testimony before the US Hoaaa Amed Servkeaittee admiiled that. Indeed, prices for many aulstary roods are kept artificially low aad that, when prices are anally restructured,iiht well be that you're going to come apifferent total
Difference* between the procUictioo costs oftbe price* paid by the MOD represent athe MOD'a budget. Subsidies for these itemsa variety of forms, but la the end all resultpayment* to weapons plant* to offsetprocurement price* paid lo them directly byRayzbcrg claims that some subsidies area* military expenditure* and arcin Ibe tute bodget" Tbe Soviet*other types of robtsdic* a*baidie* canneed by the defense-industrial ministries orprofits sta mmed fromnsuring civildefeaserca* subaidae wcapoa*They can also lake lha form of "forgiven"Unfortunately, the defease budget dauprovided the United Nation* are of ao aiebow [arte any aprxtfc type of
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The new daU do further our understanding of how Soviet procurement subsidies vary among cliises of weapon systems and among the different services. We found that, for some families of weapons, Soviet dau aad CIA estimate* exhibit similar distribution pal-tern* when broke* out by service. For example, relative tpcadiag for aircraft aad snlasik procuremeni both show rough ocaaalateacy aoroaa all of the aervitx* (act figureack patters* lagjml Ihat pricecaused by subsidies do not vary atacb by service, but only by the particelsr category of weapon* pro-cured. The aew data abo auggcat that rabssdres are not anlform across weapons categories. CIA wghsaaaw of the coat* ofhlpa, aa4 asreraA are smich higher than the comapooding Soviet budget figures, but the CIA estimate of tbe cost of land anna is only tooxwhat higher thaa the orrespoedirig Sovietfigure1"
This widespread, but uneven, application ofsubsidies means that ihe Soviet leadership'! perception* of defenseIhe extent tbey rely oa their budgethighly distorted. These subsidies could give the leadership both an artificially hy* apprrxution of the total resource commitment to defensekewed perception of the relative cost* of the ccmpcssenls of defense (see figureor example,cnrexnent rirke* idxptscd by the Soviet defense budget indicate that the pea-unit cents of ships aad aircraft arc relatively cheap, but that tanks are relatively expensive. In otherees ase of the implied greater level of aubsldies, tbe MOD pays a
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Soviet Isrg*
for theeeeareayan (SfrSfca If tlx lolA^nc* Cmnuitj kid itancj wraasalol UW physical rrodWetioa of ontOes. ibl^ ssdHcwt-tr.that the eVBenece* trtTsr giesier this code be eawee by errors laatelilreoc* OsmiDtmiti's otmMal oeodMioa mi-
W* aava ssenUBee* lha aondele bcaUoo ef edlloo* of rabies* -on* of sdditlosal stratify ipcadiag la tin budget; see agsla Dl Resareb Psoer Oefowill Vol
'Oduoa RDTAE. <
i mailer fraction of Ihe actual cost of produeiion for aircraft and ships than il does for tanks. While (here were both military aad political Incentives for the Sovieu to emphasize cuu in the Ground Forces during tbe past two years, the distortions caused by pervasive subsidies may also have caused theto conclude that cuts in land arms procurement would reap great economic benefits
definition of defense are excluded, and the set cf activities included does not change over time. Further, beforeudget can be considered indicative of tbe real Soviet resource commitment to defense, the prices paid by the MOD must be changed so that tfacyore direct relation to the value of the economic resources corssumed by defense acsjviuca (see inset).
Inefense budget in accordance with UN reporting gtiiddihes, tbe Sovieu have not moved significantly toward achieving their stated goal of presentinr defense budgets that are comparable to Western ones. Before their published defense budget will be accepted as accurate, the Sovieu need lo convince the international community that they areomr^hensive and consistent definition cfb. no activities includedtandard
The quality of the defense spending dau submitted by the Sovieu lo the United Nations indicates that, while the Soviets may have decidedtable definition of what constitutes tbe overall boundaries of defense, both coverage and dassification problems remain. At least some of theseexample, whether transporution equipment such as tracks are funded by theprobably be resolved in future defense budgeu.
-Secret
Budget Challenges Ahead
The cost of1 defense budgetillion rubles shows how Ikt pricing Issue Is likely lo develop Into em additional challenge lo Soviet credibility. Although Ike Sovieu dotm that this budget reprt-lenit0 perceni spending reduction0 In real terms. Il ti more than cme-ihlrd higher la nominal leans. Some af lhe nominal Increase In Ike defense budget may well result from reducing direct tub tidies for weapons produeiion. and muck of lhe Increase certainly will reflect ike Impact of lhe long-awaited, tconomywide wholesale pricescheduled to average over SOtook effectorn-ever, until the Soviets provide detailed price and quantity data em weapons procured, by farce structure and by component, they will find II difficult toeptbservers6 percent increase in nominal lerms actually equatespercent cut
lo compare tbehysical volume* ofby weapon tod service Hut we observed0 to tbe analogous changes Implied by Ibc Soviet budgets. Ditfcrcnccs between these changes would suggest Items where clasjificatioa remained aconversely, comparable percentage changes should suggest sums for which coverage and ctissrS-cstlon are not issues. Tho comparison wiD increase csu undenunding of the degree to which prices for these latter items are affected by implicit or expiicii production subsidies to the MOD.
We expect Soviet weapcm pricing loerious problem. Ualeaa tbe Soviets abandon Ihe geoeeal rxactice of setting prices by administrative fiat,the highly subsidized prices the MOD pays for procurement, indetailed unit price list, even deUiled Soviet budgets will remain seriously deficient. Itvco the dramatic increase ia defense prices planned for this year falls far short of thereform needed lo make prices reflect real resource costs
Tbe releaseecond detailed Soviet defense budget this fall should provide new iosigfau. Even though weapons prices are highly subsidized,90 procurement categories aboard reflect trends in physical production. We plan
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