Secret
CIA HISTORICAL REVIEW PROGRAM RELEASE AS9
The Deepening Crisis in the USSR: Prospects for the Next Year
National Intelligence Estimate
This National Intelligence Estimate represents the views of the Director of Central Inielligence with thc advice ond assistance of the OS Intelligence Community.
Direcior of
Central
Intelligence
0
The Deepening Crisis in the USSR: Prospects for the Next Year
Information available ass used in (he preparation of this National Intelligence Estimate.
The following intelligence organizations participated
in the preparation of this Eslimate:
The Conuat InteSgence Agency
The Defense fntefcgeoca Agoicy
The National Security Agency
The Bureau of Intelligence and Research.
Department ol State
atso pa/tKrpaung:
The Deputy CfMef of Staff for Imcftgenc*.
Depairncnl of the Army
octor of Naval Inielligence.
Department of the Navy
The Assistant Chief o' Stall. Intelkgence.
Depart moot of the Aa Fore*
This Estimate was approved for pubheetton by the National Foreignoard.
rkcvnnfw li/90
The Deepening Crisis in the USSR: Prospects for the Next Year
No end to Ihe Soviel domestic crisis is in sight, and theretrong probability that the situation will getmuchthc next year.
Thc economy is certain to decline, and an economic breakdownossibility. The central government will be weaker, andepublics will be further along the road to political independence.
The current situation is so fragileombination of events-such as the death of Gorbachev orrecipitous economic decline, massive consumer unrest, or an outbreak of widespread interethniclead to anarchy and/or the interrention of the military into politics.
The certain continued diffusion of power will make the conduct of Soviet foreign policy more difficult and complicate relations with the West.inimum, Western countries will be confronted with more urgent pleas for economicfromleaders, who will also push for political recognition.
Figure I
Scenarios for lhe Nexl Year
Factors Thai Could Leadcenario
Slwrl of Anirehy
Kailure In agree upon jnd implementar. reaching markciuaiion pUn; oi the broad rewunec ot (be popubUon toourse.
Failure of tbe center and thc republic* toew, mutually acceptablend economic relations.
tstrtotfom to*tLipt loch.ngirig poliiical realities, and ineffectiveness of new dcmoeraliejlly elected leaders in governing
Continued, though diminished, vubdity of <he central government
1*4
Aiurelij
precipitous deeUne of ihc economy.
Massiveroicsli or labor nril.es thm provede beyond Ihe security services' ability to control.
lhe maassiiuiion of Gorbachev or Yel'mn.
Tlie complete breakdown of rcfcriiom between thc ccmer and tlie lepublles-espccijlly the Riiisian KcpuMic.
r less
l"'er>ent"in (rangingniip toclrilian.difCC.rd martial Ik-)
T
of key elements of the ruiional economy,he transportation system.
Violence against central government inrtitutuins.
Aoaching collapse of central aoi horny.
Anarchy.
r less overall: much loweroup
die End nl tlie Tunnel'
'
progress toward:
aew ici ol relationship* allowinj ihe rejiuhtoealh each other and ihe center.
The filling of lhe political power vacuum hysotut inns and pa il ics.
O
r less
injtyiMjil loiittntclsdCKriliin);overalld(reelionse.tii.n
-femiii.
fi IJ
Key Judgments
The USSR is in the midstistoric transformation that threatens to tear the country apart. The old Communist order is in its death throes. But its diehards remain an obstructive force, and new political parties and institutions have yet to prove their effectiveness. The erosion of the center's influence, coupled with thc republics' assertion of sovereignty, isower vacuum. Gorbachev has amassed impressive power on paper, but his ability to use it effectively is increasingly in doubt. Meanwhile, economic conditions arc steadily deteriorating.
Whether the Soviet Union over the next year can begin toay out of ils crisis will hinge, above all, on two variables:
The performance of lhe economy. The question is not whether thc economy will decline further but how steep that decline willrecipitous drop would makeew center-republic relationship next to impossible and markedly increase the likelihood of serious societal unrestreakdown of political authority.
The Gorbachcv-Yel'tsin relationship. Because of thc Russian Republic's disproportionate size and influence in thc union and Ycl'tsin's role as the most prominent leader of the new political forces emerging throughout the country, the more open the confrontation between the two leaders, the more destabilizing it would be,
In our view, prospects for positive movement in each variable are low. Gorbachev's economic reform plan, while endorsing markclization, falls far short of what is needed to stem the economy's decline. And the Yel'tsin-Gorbachcv clash over thc plan, bodes ill for both economic and center-republic reform.
For these reasons, wc believe that over the nextcenario of "deterioration short of anarchy" is more likely than any of the other three scenarios that we consider possible (sechere is,ignificant potential for dramatic departures along the lines of the "anarchy" or "military intervention" scenarios.
In our most likely scenario, deterioration short of anarchy, thc country's economic, political, ethnic, and societal problems will coniinue lo gel worse at an accelerating rate. Gorbachev probably will remainear from now. but his authority will continue to decline. His ambivalence
V
toward radical transformation of thc system probably will continue to delay decisive action and dilute the effectiveness of efforts to implement market reform orew union, Ycl'tsin's popularity and control over the Russian government will give him significant influence on the country's course over the next year. The different visions the two men have of Russia's and the USSR's future are likely to lead to more damaging political clashes.ombination of the remaining powers of thc old order and the limited reforms thc regime implements would prevent the entire system from disintegrating.
In view of the volatile situation that prevails in the USSR today, however, wc believe lhat threerobability-are also possible over the next year.
An accelerating deterioration is unlikely lo continue indefinitely and could during the next yearree fall that would resulteriod ofbreakdown of central political and economic order.
The chances for military intervention in politics would increase markedlycenario where the country was on thc verge of, ortate ofMilitary intervention could take severalilitary coup against the constitutional order, rogue activity by individualor martial law ordered by Gorbachev io enforce government directives. Of these, Intelligence Community analystsoup to be the least likely variantivilian-directed martial law the most likely.
A "light at the end of the tunnel" scenario, where progress over the next year toward the creationew system ouipaces the breakdown of thc old, cannot be ruled out. There would be further progress toward markelization and pluralization in spite of continued economic decline
and political turmoil.
Whichever scenario prevails, the USSR during the next year will remain inward looking,eclining ability to maintain its roleuperpower. Thc domestic crisis will coniinue to preoccupy any Soviet leaders and prompt them,inimum, to seek to avoid direct confrontation with the West. But thc particular foreign policies they ptnsuc could vary significantly depending upon the scenario. Under thc "deterioration short of anarchy" or "lifjht at thc end of the tunnel" scenarios, Moscow's Western orientation probably would be reflected in continued, possibly greater. Soviet willingness to compromiseange of international issues
Special requests to the West for consultations, lechnical assisiancc, emergency aid. and trade from the cenlnil and republic governments arc certain to increase. Unless polilical conflict over who owns resources and
controls foreign trade is resolved, which is unlikely, both US governmental and private business relations with the USSR and its republics will be increasingly complicated.
An "anarchy" scenario would create precarious conditions for relations with the West and would present the United States with some difficult choices. If thc situation evolved into civil wars, we would face competing claims for recognition and assisuncc. Thc prospects for tbe fighting to spill over into neighboring countries would increase. Tbe West would be inundated with refugees, and there would be enormous uncertainties over who was in control of the Soviet military'i nuclear weapons.
military intervention"ilitary-dominated regime wouldess concessionary approach than Gorbachev's on foreign policy issues andougher line on arms control issues and economic relations with Easternilitary regime, however, would be unable to restore Soviet influence in Eastern Europe and would be too busy attempting to hold thc USSR together toostile military posture toward lhe West.
Contents
Paoe
Judgments
a New Political Order
Strategy of the Key Players
of Other Players
he Crumbling Union
Kind of Union?
Economic Variable
l
of Central Control
1
and Ethnic Strife
Imbalance
Reform
Scenarios
Short of Anarchy
Intervention
7
at thc End of the Tunnel"
for the United States
A: Emerging Democratic Leaders
B: Emerging Traditionalist Leaders
23
Discussion
the intelligence Community's last Estimate of lhc Soviel domesticearhe USSR's internal crisis has deepened considerably:
The Communist Party is dying but is stillGorbachev bas tried to shift the locus of power lo the new presidency and legislatures, but tbey have yet to demonstrate ihcir effectiveness.
New political groups and parties have won power in key republics aad cities and arerowing challenge io the Communist system.
The national government is scramblingontrol centrifugal trends, bui its writ over the republics is fail eroding, and there is growing ethnic turmoil.
Economic problems have become rnore intractable. The uncontrolled growth in demand andproblems have created increasing consumer discontent- Gorbachev has lost valuable time in stabilizing the economy and beginning thc transitionarket economy.
Our previous Estimate, while foreseeing the tumult, overstated the regime's ability to contain tbcdrive for sovereignly and underestimated the
challenge to Communist Parly rule from new political forces.
Inolatile atmosphere, events could go in any number of directions. Because of this, tbe Intelligence Community's uncertainties about thc future of the Soviet system are greater today than at any time in theears we have been producing Primates on (Ik USSR. Accordingly, our projections for the nexl year will be highly tentative.
' NIEIMS', Thr Sorirl
Syiirm in Crisis' Pwpetitfor iht Srxi TW Yuri.
TowardNew Political Order
The Communist Party's monopoly of power is history The party is widely seen as the source of Ihc country's problems, and popular hatred of ii is increasingly evident. It lost its constitutional guarantee of political primacy in March, andh Congress in July excluded government leaders (except for Gorbachev) from key party posts. The country's two largest cities and largest republic, as well as tbc three Baltic republics, Georgia, and Armenia, are now headed or have legislatures dominated by former or
A new pluialislic. decentralized political system is emerging but is not yet capable of running the country. The center and tbe Communist Party stillonsiderable, though declining, share of political power. But iht CPSU ii loo discredited lo aiiract sufficient popular suppori needed lo govern in lhe current tnvironmtnl. At the same time, lhe emerging political groups, while showing strength, arc still small and inexperienced in the ways of power and arc not competitive on Ibe all-union level (tec inset,
The governmental institutions to which Gorbachev has been attempting lo shift power are likewise only in their formativehe Congress of People's Deputies (CPD) is foundering. The Supreme Soviet-elected by tbcshown rnore promise, but is also losing influence because of its lack of popular legitimacy, its inability lo act decisively, and the center's difficulty in maintaining control over major sectors of government Gorbachev has made theIhe highest organ of executive power,the CPSU Politburo and the Council of Ministers, but iu real authority remains lo be proved This diffusion and confusion of power, coupled wtth the republics* assertion of sovereignly, isower
Figure 1 un anJBeyond Ihe Smiles, ear, ihey r
Gorbachev has amassed impressive power on paper, bui his ability to use it effectively is increasine-ly in question and his popular support/"
Jis
Polilical Strategy of Ibe Key Players Gorbachev's defeat of lhe party's conservative wing al the congress has given him greater room to maneuver. Tbe pressure created by Ycl'tsin's growing influence has made Gorbachev realize lhat he musi work wiih Yel'isin and other non-Communist forces. He now accepts the inevitabilityeakerarket-oriented economy. Yeiafraid of social upheaval, wants loignificant measure of control over events. This has led him to try to bolster his powers as President, limit thc influence of new non-Communist political forces, retain significant powers for the centerew union, and water down thc Shatalin Planarket economy. This course is at odds with Yel'ism's on some key issues and is slower and not as far reaching as we believe is necessary.
The polilical forces outside the Communist Party are Certain to gel stronger,s yet, however, no
coherent strategy among those forceshole.
Many non-Com munis! figures ;ire concentrating iheir erTorii on organising political parties. Others who have already won elections, such as Yel'isin and
Moscow Mayor Gavriil Popov, have shunnedihe lime being atany political party and concentrated on tbe basics of governing (seef tbcy demonstrate over the next year that Ihey can get things done and make Ihe voices of iheir constituents heard, the prospectsore rapid emergence ofa non-Communist leadership on ibe all-union level would Increase markedly.
Ycl'tsin's immediate goal is achieving sovereignty and grealer power for lhc Russian Republic (sec p. 1y. but thc enormous sire of that republic and his reputation Ihroughoul ihe USSR as unofficial leader of ihe non-Communist forces makeormidable competitor to Gorbachev. Yel'tsin, who quil Ihe CPSU in July,ultiparty democracy, rapid movementarket economy,uch looser union in which tbc republics grant only limited powers lo lhe cenler.
Currently. Yeltsin appears to have ihe political advantage over Gorbachev; he is far more popular ihan Gorbachev in USSR-wide opinion polls. In lhc sii months since Yel'isin became Russia's President, ihe iwo have had periods of cooperaiion and confron taiion. Their willingness and abilityooperate willritical role in ine fate of poiilical. ecooomic, and center-republic iransformation in the USSR over lhc next year Whether they will do so is open to question, given iheir mutual personal antagonism.
Embryonic National Political Parties
A wide array of political groups Is emerging In the USSR as the country moves toward theiniultiparty, state-of-taw political system. They have the potential to gain significantsupportfor those In the Baltics and theyet to develop Into full-blown political parties. The groups generally lack clear, comprehensive political platforms, and noneormal membership of more than several thou-sand. Several groups claim to bt parties or will claim that title soon. Although based In thtRepublic, they have some following in other parts of the country.
Democratic Platform. This group of democratic reformers from tht CPSU Is in the process of transforming itself Into an Independent party. Its leaders predict thatercent of the current CPSU membership will eventually Join the new
party, but the actual figure is likely to be lower. The party's platform supports the market as the
prime regulator of the economy, private property.
and "independence" for thc republics.
Democratic Russia. This group Is currently savingegislative coalition and has run prortfoem candidates for local and Russian RepublicIt embraces an assortment of political forces opposed to CPSU traditionalists. The grouphas strong majorities in the Moscow and Lenintrad city councilshin majority In Russian Supreme Soviel.
Social
his partyorted loo cautioustartan system.
Christian Democratic Union of Russia, This party openly opposes Gorbachev. It Insists that "Russia should become Independent of the USSR" by establishing new forms of federation with other democratically Inclined republics. The party'splatform rejects capitalism 'whilefree market controlled by society" and atax scale to protect the poor.
Democratic Union. Radical by Sovielparty believes the Soviet politicalbe thoroughly overhauled to establishfederation of republics based on amultiparty systemullParly leaders have stressed the needgovernment authorities in order toto the repressive character af lheParty. This parly is takingcological organisations.agree on tke need to protectbut have not been able to developon other political or economic.
policy agendas, and poliUcal rivalry. Open confrontation would stymie system iraruforrnation and lead lo greater instability. Cooperation would not guarantee peaceful Iramformalion. but it would help significantly by garnering popular support for painful economic measures linked to marketiralion and by making it more difficult for lhe entrenched party machinery in ibe countryside lo be obstructive If Ycl'min follows through during the next year on his
pledge, to stand for popular election to thc Russian Republicecisive victory would further enhance his political influence.
Gorbachev, Ihe Supreme Soviet, and the Congress of People's Deputies, elected before the establishmeni of indcpcndenl political parties. lack thc popular suppori
Secret-
rri.
to push through lhe difficult and painful measures needed to deal with thc countrycrises. Accordingly. Gorbachev could decide during the next year toroundtable" between theand non-Communista Poland9 or perhaps evenrand coalition. This would involve the removal of the increasingly ineffective NikoJay Ryihkov from the premiership. Elections for the Congress of People's Deputies are not due4 and for the presidencyutmay calculate that holding early legislative elections would allow new parties to gainSubmitting himself lo the popular will would be risky, and he is unlikely lo do so during lhe coming year.
Impact of Otber Players
The Armed Forces aad Security Sen-ices. Leaders of the military and security services perceive dangerous consequences from Gorbachev's domestic and foreign policies. These concerns refect alarm over theauthority of lhc party and the central government, growing domestic disorder, the unchecked spread of separatist movements, and lhe breakup of tbe East European security system.
Flturtemasiiailoni on Hay0 la Red Sa fani itads; "Piinrrhe people and noi io ike parlyr
iheir apprehension over lhe current domestic situation and concern about their abilities to perform assigned missions, the military and security services do noterious challenge to Gorbachev'sThey view themselves as instruments of thc slate and arc attempting to help Gorbachev in dealing with lhe tuimoil. Even with iheir many iniernal problems, they represent thc most reliable institutional assets remaining ai Gorbachev's disposal.
Society, Popular anger is growing, as is belief in the inability of ihe ccniral governmeni to lead the country out of the morass it is in. Deep pessimism about tbe future prevails, especially when it comes to bread and buller issues. People are searching for something to fill ihe emptiness in Soviet society through sueji alternatives as religion and nationalism. In particular, Russianlikely in anrather thanrowing role in thc fuiure of Ihe country.
The relorms under way have given thc peoples ot tne USSR greater say in iheir political and economic lives, and they have expressed iheir views through thc ballot, demonstrations, strikes, and violence. Thc pop.
illation's influence is likely to grow even more during ihe next year as power continues lo move away from central institutions. How this influence is exercised and channeled will be critical variables. Separatist groups and new politicalon ihe left, but also from thelap much of this popular activism. This will increase Iheir importance bul could also embolden Ihem to take steps that lead to greater instability. Outbursts of civil disobedience arc almosi cerlain Io grow; ihey are moree mostnon-Russian areas bul probably will also take place in Ihe largest cities of lhc Russian Republic and in energy-producing regions.
The Crumbling Union
Thc Soviet Union as we have known il is finished. The USSR is,inimum, headedmaller and looser union. Thc republics, led by Yel'isin and the RSFSR, will intensify efforts lo reshape lhe union independent of the center, further loosening Moscow's
SlMM.H
Figure 5
Sovicl Republics
over iheir regions. To date, these efforts are mostly declaratory; actual control over institutions and resources in the republics is still to be tested.
In an effort to cope with lhe nationalist forcesthe fabric of Ihe union. Gorbachev nowubstantially widened scope for market forces and the conclusionew union treaty by1 lhat would establish new power-sharing relationshipsMoscow and each republic We doubt, however,ew union treaty can be concluded within the nest year Gorbachev has indicated he willeduction in the center's authority bin so far is attempting lo hold on lo more authority than most
republics want to concede. The initiative now resides mainly with the republics, and any new treaty is likely to be driven more by what powers they are willing to grant ihe renter than by what Gorbachev wants (see
Because of the disproportionate sire and influence ofew union treaty will not be concluded unless Yel'tsin and Gorbachev work together. How far many of Ihc ether republics go in demanding sovereignty will be directly affected by Russia'sin negotiating with the center snd with lhc other repi blks
Kigurr 6
USSR: Sonet Republicxt-ration*
Reputrfic (in otdee of Aetlaraikm)
ol (cpuMK lxn
10nulltarj liOOpt
oiiK pol^t,
Republic banking, in. currency
fnicigii id jiixii
esourcei
(MuemlHp
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in unon nwlyUlLi
SH skdK ciglil lo
bi.*^
b Mohkiv*ihIIiow
'
nln>niin>ciio>iI .Win tnir.nl
The Range af Republic Demands
Thr two largest and most powerful republics.
Russia and the Ukraine, noweverely limited central government and union as they demand substantial control over their ownThe Russian Republic legislature Is call' ing for primacy of its own laws over Soviel ones, control of the republic's land and naturalfiscal policy, police and Internalforces, most economic enterprises, foreign trade, and some role in foreign and monetary policy. The Ukraine has gone further, asserting the right to establish its own army, and Belo-russia and the Central Asian republics are also making far-reaching demands. The three Baltic republics are flatly refecting political affiliation with the center before achieving independence. Georgia. Armenia, and Moldova, In which se-
cessionisl sentiment is especially strong, appear unwilling tonion treaty but areradual transition Io independence.
The Ualea Treaty-AreasOver Which The' Center Seeks Contra!
Gorbachev apparently wants to maintain the primacy of union laws over republic ones and to preserve substantial central control of:
Natural resources and land.
Defense and state security.
Foreign policy.
Macroeconomic policy.
Foreign Irade and customs.
Border control.
Science and technology policy.
Power supply.
- Transportation.
of individual rights.
sicps in defining ihc republic's relationship withRukhomplete break with the central government, but more traditionalist forces in the Russified eastern part of the republic are likely to try to impede any abrupt declaration of independence.
Kind of Union?
Thc process of reshaping lhc union willhe republic over the next year;inimum, lhe center willramatic reduction in
Thereetier than even chance that Moscow and certainBelorussia. Arerbaijan, and the Central Asianmoveoosely allilialed union of republics. Wc believe thai Gorbachev will ultimatelyong way to meet Russia's autonomy demands as lona as the central governmenteaningful role in thc new union Considerable difficulties and hard bargaining remain, but so far the demands of Russia and these other republics do not appear irreconciliable with Gorbachevs (sec inscU)
mines future status is more uncertainradicaliution of lhe nationalist organization Rukh and ihc population generally has pushed thc Ukrainian legislature io lake incrcasincly assertive
Thus, there isignificant chance thai Moscow will be unable toutually acceptable division of responsibilities even wiih the core Slavic republics. Moscow could reject iheir current demands, or the RSFSR or Ukraine could escalate demands in areas such as defense and monetary policy to the point where Gorbachev would feel be had no choke but loumber of factors could contributereakdown in negotiations,ontinued rise in Ukrainian nationalism, worsening of relationsGorbachev and Yel'uin. or rising popular unrest directed against central authority. In these circumstances, struggle for control of key institutions and enterprises in tbe republics would ensue, leading towith the very existence of lhe union al stake. The advantage in this scenario would belong lo thc "locals."
The Central Asian republics appear ready lo tryeformed unionay of addressing their economic
10
-&oo id-
Market reform will cre.itr disproportion -ate economic pain in thc region, however, and could eventually produce disillusion withooser union.
Although no republic is likely to become officially independent within the next year, the Baltic republics are almost certain to hold out for full independence and will be on their way to getting it. Latvia and Estonia will probably be willing to consider some kind of voluntary ecooomic association with the Soviel Union now. bul Lithuania is likely to be willing lo do so only after achieving comptele independence. Gear' eta. Armenia, and Moldova will probably reject any union treaty bul willore gradual approach to independence than lhc Balls. As Georgia and Moldova press for independence, ethnic minorities there are likely to intensify calls for autonomy. This probably would not deter republic efforts. Bulmay yet be able to play on Georgian and Armenian concerns about .susceptibility lo potential Turkish or other Muslim aggression without the protection of the Soviet security umbrella.hift in Romania toward greater authoritarianism would probably make the Moldovans more willing to stay in the union.
The Economic Variable
Last year thc Soviet economy slumped badly, and official statistics for lhe first nine months0icture of an economy in accelerating decline. Output is down comparedear ago, inflation is up, and shortages are widespread and increasing. Even though imports and production of somegoods are up (such as in agriculture and consumerransporution bottlenecks and systemic inefficiency arc denying consumers much of theMeanwhile, continued rapid growth in personal money incomesugc backlog of excess purchas-ine power have combined lo undermine the ruble and
icious circle of shortages and binge buying, enflaming consumer anger and leading to violence.
In the year to come, thc economy's performance will depend on how central authorities manage erosion of their control over lhe economy. Ibe level of labor and ethnic strife, ibe success of regime efforts to overcome the acute financial imbalance, and Ihc course of markedznlion. In view of our assessment of thc prospects for each of these variables, wc believe that the economy will continue declining at an accelerating rate and ihc reossibility of an economic(ice insel..
Erosion of Central Control
The transition from Ihc command economyore decentralized market system will ultimately yield major gains in performance. In the short run,central controls have begun to wither before an effective new system has been put in place- Thc Communist Party il no longer able to enforce the state's economic orders; economic reforms have given stale enterprises and farms lhe legal basis to resist lhe center; and lhe pursuit of independence and autonomy at the republic and enterprise levels have disrupted old supply and demand relationships.
Over ibe next year, these trends are almost certain to continue, and tbe center could be weakenedoint where ii would lose control of the allocation of vital goods such as energy, key industrial materials, and grain. Attempts by regional authorities to protect ibeir populations from rampant shortages will worsen the cuiicnt economic turmoil. Al lhc same lime, thc interdependence of thc republics and localities and the
Figure 7
Soviet Economic I'rifoou.unDown
'CIA,ovici ofTicioi nai.il ic.
NOTE Jjiiuaiy September IWl)noimpared "villi January-Sqrtcmtx'f IWJ
of ihc regional authorities in avoidingchaos will continue lo argue for restraint againsi severing old rrlatrauhips.
Ubor and Ethnic Strife
J-iboi and ethnic problems over the past year have been major contributors lo lhe USSR's economic lurmoil. Poor living and working coitions,shortages, and greater awareness of lhe workers of iheir lot have led to falling worker motivation and fueled labor and ethnic unrest Because theseare certain lo gel worse in (he year to come, labor strife will conlinuc. and faith in goverximent solutions lo labor problem* wilt remain low.
The economy is most vulnerable to work stoppages in Ihe transportation and energy scciors. The railroad system has virtually no slack capacity or substitutes. Strikes in this sector would immediately damage the already fragile supply network, grinding other sectorsalt and probably leading to the use ofiliiary to run the railroads. Similarly, an upsurge in unrcslarge republic such as the Ukraine or in the Great Russian heartland would be especially damaginghe economy.
- Sj'uairn, .
Breakdown
A severe breakdown In the coordination between supply and demand Is rare historically and hasesult of revolution, war. or disastrous economic policies. Under present circumstances,reakdown could be precipitated by massive popular unrest, regional autarky that destroys Iradeadical economicor prolonged strikes of transport workers or workers In basic Industries such as steel and energy.
Indicators ofreakdown would be:
A decline in GNP of at leastercent.
Hyperinflation, massive bankruptcies and unemployment
' Paralysis of the distribution system for both Industrial and consumer goods.
flight from the ruble that results In barter irade or payment In hard currency.
Financial Imbalance
Moscow has struggled unsuccessfully in tbe past Iwo years lo stow ot reverse lhe growth of lhe excess purchasing power that has destabilized consumer markets. The key to reducing lhe dangerous backlog of excess purchasing power in the year ahead is to lower the budget deficit and proceed with price reform. Despite the slated intention of lhe Gorbachev reform program, however, it is doubtful lhat Moscow will move quickly in either area.ent In this problem will require further cuts in stale spending for investment and defense and reductions in socialparticularly lhe huge subsidies for food. Moscow still fears popular reaction to price increases, however,arge safety nel is an integral part of lhc Gorbachev program If the government continues lo defer decisive action oa these issues, thc threateal financial crisis will deepen considerably and further complicate reform efforts.
Mtikel Reform
The Gorbachev program approved by thc Supreme Soviet in October endorses marketization but failsut the bureaucracy immediately, thus making it easy for recalcitrants lo block progress (seche plan also sets no specific goab Or timetables forof slate assets. Although Gorbachevs advisers indicate that this lack of detail is designed to leave tbe republics free lo work out thc specifics ofihc program's reliance on stale orders and administered prices for at least another year will sharply limit lhe number of enterprises lhal could be denationalized. In addition, the plan's measures to stabilize the economy arclarge increases in wholesale prices and continuation of subsidies lo consumers2 will spurand undercut deficit reduction.
Overall. Gorbachev's programeavily political document aimed at garnering republic support while retaining substantial power for thc center. Itlower, more cautious approach on-movingarket than the Shatalin Plan- -supported by thc Russian and olherthereby probably runs less risk in thc short term. The limitations of lhe Gorbachev program arc such, however, lhat it is unlikely to deliver lhe promised ecooomic gains and,esult, over the longer term it will court greater polilical problems than lhc Shaialirt Plan would have. As thc program's deficiencies become apparent in thc months ahead, lhe leadership is likely to consider more ladical measures loransitionarket under even more dire economic conditions With this program or any other lhat may be adopted, it Is Impossible to overstate how difficult, painful, and contentious it will bearge multinational stateoirommandarket economy.
-Sosrot-
Elements of Gorbachev's Market Reform Program
Timing
month conversion to market period In four stages butefinite schedule for each stage.
Center-republic powers
Both center and republics have budget and taxcenser taxationrepublic concurrence. Center retains conlrol over key exporlsfar someshares hard currency revenues with republics.
Reduce deficitdefense.enterpriseMaintain key consumer subsidies.deficit with bonds. Absorb ruble overhang wiih bond, consumer warrant sales; sales of some other state assets; and throughin saving interest rates.
Privatization
Price reform
Foreign economic relalions
uetics controljnost cV
aiia^^
set pace.
-decide issue ofprfim^eW:'^
ownership of land.
Increase wholesale prices according tochedule; enterpriseto use these prices. Stale orders and central distribution, not prices, to determine most
Moves gradually toward ruble convertibility. Calls for increasedon foreignIncludingforeign ownership of
firms.
Scenarios
/ wouldn'tuess.
Uvestiyo commentator's answer to US Embassy officer's question in July aboul how he envisioned the USSR in
tlo ihree years.
Tbe interaction ol political, ethnic, and economic variablesdetermine the fate of lhe couniry over the next year: ma jot deterioration in any one area
would severely strain lbc current system; breakdowns in all three would mean anarchy. Economicin particular, would makeew cenier-republic reUltonship nexl to impossible and markedly increase the likelihood of serious societal unrest.
A fuiihcr diffusion of power from ihc center in all threeeconomic, and-it certain. Gorbachev's authority will continue to
decline, although he will probably remain inear from now. Even under the most optimistic scenario, the Soviet domestic crisis will be far from resolved io one year's time. The turmoil will continue regardless of the policies pursued. Progress could be made in some areas. But the risk of sudden major discontinuities will remain, and it willecade orfind lasting solutions to the country's ills.
Given the unpredictable nature of events in the volatile situation that prevails in the USSR today, we believe that four scenarios capture the range of possibilities durinc the neat year deterioration short of anarchy; anarchy; miliiary intervention; and "light at theendofthe tunnel"(ttx figure Ik These scenarios are analytical constructs describing overall directions thc country could take over the next year and are not mutually exclusive. Some would be most likely to develop from one of lhe others. We believe that the "deterioration short of anarchy" scenario, which develops out of current trends, is more likely than any of Hie olher ihree. There is,ignificant potential for dramatic departures along the lines of the "anarchy" or "military intervention" scenarios. Conditions are such that lhe odds strongly favor some form of these three "bad news" scenarios during ihe coming year.
Detcrlorarion Shon of Anarchy
Current trends in the country and lhc enormous
problems facing it in every sphere make Ibis thc most likely scenario over the next year, in our view.Community analysts give thisose to even probability. Tbe economic, political, ethnic, and socieial problems would continue to gel worse at an accelerating rale. This scenario would beby:
lo agree upon and implementar-rcachinE markeiiralion program; or lhe broad resistance of thc population toourse.
of the center and thc republics to move to new mutually acceptable polilical and economic relations.
Inability of political institutions lo adapt topolitical realities and ineffectiveness of new democratically elected leaders in governing.ombination of the remaining powers of ihe old order -the parly and government machinery ind the securitytbc limited reforms the regime implements would prevent the entire system from collapsing.
Some positive trends could also occur under this scenario but would not be likely to develop sufficiently to stem the country's rapidly declining fortuneslhc nexl year. Gorbachev's ambivalence toward radical transformation of the system would end up delaying decisive action and diluting lhe effectiveness of steps his government takes. Tbe non-Communist forces both in and out of government would not be able lo form coalitionsutionwide scale to give clear-cut direction. The complexities snd social pain associated witharket reform plan in place would not even begin to reslore confidence in lhe currency, reverse autarkic trends, or revitalizenot to mention improve economicThe giowing autonomy and self-confidence of non-Russians throughout the country would lead lo escalating demands and make lhe achievementoluntary union much more complicated
This diffusion of power would lead during the nexl year to an increasing power vacuum. With thedeterioration of central conirol andweaknesses of lhe opposition, more power would be likely to move into the streets. Strikes andunrest would almost certainly grow, lhe more so the more rapidly the economy declines. Ethnic unrest and violence would also increase. The securily services and lhe military would be able lo manage as long as protests remain scattered and uncoordinated.
The key determinant of how long this scenario would persist is how long Ihe economy can keep from collapsing under these conditions. The longer this scenario prevailed, ike greater the prospects would be for anarchy or military intervention,
BEST Wi
ita rc by
An accelerating deterioration is unlikely lo continue indefinitely and could, during lbc next year,ree fall ihat would resulteriod of anarchy. Community analysis generally believe that Iheof this scenario isr less. Anarchy would be cluractcriiedreakdown of lbcsystem, collapse of central poliiical authority, and widespread social upheaval.
Such an outcome could result from the interactionumber of developments. In fact, any onecouldascade thai eventually leadsollapse of the system:
sharp acceleration of negative economic trends already inautarky, severe food shortages this winter, numerous plant closings due to lack of fuel and supplies.
social protests or labor strikes ihat proved to be beyond tbe security and armedny lo conlrol or resulted in large-scale civilian casual lies.
Thc assassinationey leader, such asor Yel'tsin.
The complete breakdown of relations bclween ihe center and thethc Russian Republic.
The ouibreak of sustained, widespread inierclhnicif directed against Russians.
There arc several likely consequences ofcenario:
Gorbachev would not politically survtve such an upheaval.
The potential for severe food shortages andwould be high.
The union would disintegrate Mosi republics would break away from the center, potentially selling off civil wars and massive migrations.
There probably would be various political outcomes (authoritarian, miliiary dominated. democratic) in different legions of what is now lhc USSR.
the Departure of Gorbe^er'or'Yeiisla ""
Impact af theirsudden departurecene would varyhetherur red via assasilnatlon^death by natural auses, or political pressvre^-viithion undoubtedly being jhe mostut leaving aside the circumstances, what ould their absence mean?
Gorbachevs departure twoevenwhile the traditionalists stilloined considerable strength In theand the democratic reforms had barely begunetthe ground, probably would have set tff back those reforms many years. His demist Irif?-the nexi year would be certain to throw the ountry into flux. The CPSU has no obvious successor who could wield the influence Gorba- hev has. and the presidency would not be asosl withouttrong leader. Mt the same time, traditionalists could see an opportunity toomeback. The demo-eratle and market reforms have now takenife of their own, however, beyond the conlrol of even asigure as Gorbachev. The transformation af the Soviet system would take placeore uncertain atmosphere tn the immediate aftermath of Gorbachev's' but he is no longer "thelndlspensable
sSis.
Yeltsin hasemocralic reform In the movemeni challenge Gorbachev, major setback to the probably not ernt. There democratic sin's popular appeal that over time might national role.
Military
Community analysis believe thai ihe prospects foe military intervention in politics arc roughly tbc same as those foir less. Besides Gorbachevs apparent extreme reluctance Io useforce lo deal with the country's problems, most Soviet leaders probably believe theretrong danger that military intervention could accelerate tbe trend toward chaos and lead to tbc outbreak of virtual civil war. Problems in society, moreover, haveebilitating effect upon Ihe military, making itless suitable and reliable for use in putting down social unrest or enforcing unpopulardirectives.
Even so. under conditions of continuing deterioration, the likelihood of the military's becoming morein internal politics will grow as thc leadership become more dependent on lhe Armed Forces and securily services lo maintain control. The traditional Russian desire for order could evenerception of the military among elements of the population as the key lo national salvationime of growing chaos. Many senior miliiary leaders share Ibis view of Ihc Armed Forces as thc conservator of lhe Sovicl slate. The chances for miliiary intervention would Increase markedlycenario where the country was on ihe verge of. ortale of anarchy.
Miliury intervention could uke severaliliury coup againsi lhe constitutional order, rogue activity by individual commanders, or martial law ordered by Gorbachev. Of these. Community analysis believe alhe military acting alone or in conjunction with the securily services and CPSUbe the least likely variant. Such an attempt would have io overcome numerous obstacles, including lhe difficulty of secretly coordinating ;hc activities of the many units requireduccessful putsch, lhe increasing polilical polarization of ihe Armed lorces, the miliury lesdenbip's prc/casional inhibitions againstrastic step, and Ihc fear of large-scale resistance by Soviet society.
Only slightly more probable, in our view, would be independent action by local military units in Ibe face of widespread violence lhat threatens or causes ihe collapse of civil government. In such an event, a
miliiary diilriciof Moscow and possibly at Ihe request of besieged regionalorder bis forces to restore control locally. Whether troops would obey under these conditions would depend greatly on localLacking clear direction and coordination, such independent miliury actions probably would not succeed for very long, except perhapsituation of countrywide anarchy.
We believe that tbe most likely variant of miliury intervention would be one in which thc centralin Moscow, believing il was losing all control of events and wanting to stabilize lhe situation, called on the miliury to impose martial law in selected areas and enforce governmeni directives in the name of salvaging reform. Such an effort probably would be limiied to Russiaew other key republics. The High Command would try to execute such orders, seeing this as ils duty to lhe state. If the conditions are severe enough, such military intervention mighl be welcomed by the local population and could stabilize the situation temporarily. Unless accompaniedrogram offering solutions to Ihc country's political, ethnic, and economic crises, however, the benefits fromtep would be transitory and probably counterproductive in tbe long run.
"Ligbl al the End of ihc Tunnel"
The prospects that progress toward tbe creationew system over the next year could outpace lhe breakdown of the old are alsor less, in our view. This scenario would develop out of current pressureluralistic political system, self-determination, and markelization. Such trends, while not ending the societal turmoil, might gathersteam lo improve prospects for long-term social stability. Fconomic hardship would increasearket economy began and enormous difficulties inew poliical order would lay ahead,sychological corner would be turned io give ihc population some hoperighter future.
.finarat-
miseange of international issues. The Soviets would be try likely to coniinue:
Deepening ihe growing economic and political reta-iKinships with Ihc Uniied Sutes. Western Europe, and.esser extern. Japan.
Negotiating ongoing and new arms control agreements.
Cooperating inew European securily order.
Reducing miliury and economic commilmenu in Ihe Third World and expanding cooperation with the Uniied Slates there.'
In Ihese scenarios, Soviel II well as republic interest in Western economic involvement would continue lo expand rapidly. The liberalization of laws on joint venlurcs. piopcrly ownership, and personal cntrepen-eurship create improved conditions for WesternHowever, uncertain lies over prospects for market reform, the role of the central versus thc republic governmems in such areas as banking andde. and Ibe ongoing turmoil in Scmcl society will make significantiskyfor Western firms and make il unlikely that many will commit much lo thc effort
The central and republic leaden also appear not io have thought through what forms of Western aid or inves,men! ihey would like, the scale of assisunce. or ihe timing. Proposals rangemodern Marshallo Soviel inclusion in international financial organizations, to technical assisunce for markeliza-non. The USSR faces serious structural and societal obstacles, however, that would dilute the impact of most forms or foreign aid except for technicalReceni experience has shown lhal the country's iransporuiion and distribution networks are ill equipped to move large quantities of importsc-sculc corruption and black-markeleeringdimmish the system's capabilities to ret goods to their dcstinalions. If Moscow moves decisively toward
* lT"-ts, hu
im nW Axi-CW Wm
18
market economy. Soviet leader* will press lhe Wesi and Japan even harder for assisuncc lo cushion lhe Iraoo.
Into mil poliiical developments may also pushio conclude agreements wiih the West as quickly as possible. Assertions of auionomy by republics in lhc areas of economics and defense will increasingly challenge his authority lo speak, on behalf of lhe USSR. Thc diffusion of power is bringing new actors to the scene who will attempt to develop tbeir own relations wiih Western slates, especially in thcsphere. Special tequcsls for consultation*,assistance, emergency aid, and trade fromgovernments are likely lo increase. Unless political conflict over who owns resources and controls foreign trade is resolved, both US governmental and private business relations with Ihe USSR and its republics will be complicated. Those direct Weslern contacts with thc republics disapproved of by Moscow would be perceived as interference and could result in sleps by ihe central governmcni lo block Western assistance io republics and localities.
An "anarchy" scenario would erratic precariouslor relations with the West and would present Ihe United States with some difficult choices. Various factions would declare independence orcfliral government and push for Western recognition andmiliiary aid. Each Western government would he faced with ihe dilemma of which factions to deal with and support. If the situation evolved inio civil wars, the fighting could spill over into neighboring countries. Eastern Europe andounliies would be inundated wiihand there would be enormous uncertainties over who was in conlrol of the Soviel military's nuclear weapons.
Under conditions ofoherent Sovietpolicy would be highly unlikely, and Soviel abilityonclude ongoing arms conlrol negotiations, implement accords already reached, and carry out Iroop withdrawals from Eastern Europe would be
undercut. Troop withdrawals from Germany, forcould be delayed or stymied by transport
disruptions or by wholesale defections of Soviet troop?
eagerscape thc turmoil awaiting them in thc
USSR.
military intervention'*ilitary-dominated regime wouldeas concessionary approach than Gorbachev's on foreign policy Issues andougher line on arms control issues because of tbc military's current misgivings aboul CFE, START, and lhe changes in Eastern Europe Moreover,egime probably would diverge significantly from current policy on Jewish emigration and be less inclinedupport thc presence of US miliiary forces in lhc Persian Gulf region. Such policy shifts could undermine the entire panoply of Soviet political, economic, and miliiary tics to theilitary regime, however, would be too busyto hold thc USSR together loostile miliiary posture toward lhc West, although further shifts in resources away from lhc defense sector could be halted.egime would be unable to restore Soviel influence in Eastern Europe but would be likely tooucher yine on economic issues and would make East-West cooper*ion in the region more difficult
1-J
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Annex A
Emerging Democratic Leaders
Vvacbeslat Sbostakoiskly
A member of ihe Coordinating Council ofotratic PUtforrn, Shostakovs-kiy advocatesost-Communist parliamentary party that will cooperate with democratic forces both within and outside the CPSU. Shostakovskiyath CPSU Congress in July that the Democratic Platform was withdrawing from the CPSU toew party, and shortly thereafter was fired from his post as rector of the Moscow Higher Party School, i
Sobchak
A legal scholar and radical reformer. Sobchak was elected chairman of thc Leningrad city council in May. Sobchak may have first met Gorbachev in thc, when he practiced law in the President's home region of Stavropol. Sobchak is an outspoken critic of Premier Ryzhkov and his ideas on economic reform.esigned from the Communist Party in July. He is currently cooperating with Yel'tsin. but policy and ego clashes probably will occur in the coming year, (flflfe
Popov
Popov, who resigned from Ihcsi Party in July, has long been one ofthe USSR's most outspoken economists. Since becoming chairman of Moscow's city council in April, hc has cnergeiically worked to implement radical market reforms in the city.as been called shy bui has also been accused of having an auihoriiarian management style. As mayor. Popov has cooperated with Moscow party boss Yuriyoderate reformer, andey adviser to Yel'tsin.
N iho lay Tratkin
Tiavkinadical reformer who favors immediate privatisation of Soviet state enterprises and rapid legalization of privateember of both the RSFSR and USSR Supreme Soviets, Travkin advises Yel'tsin. Travkin, who left the CPSU in March, was elected chairman of tbe Democratic Party of Russia at its founding conference in May (not to be confused with broader "Democratic Russia" movement, of which Travkin i< aiso ravkinSMfc
Annex B
Emerging Traditionalist Leaders
V'eniamin Yarin
Yarin has emerged as an energetic, popular, and effective right-wing leader within the USSR Supreme Soviet and now also sits on the Presidential Council. Influential among the working clasself-avowed Russian nationalist, he opposes market-oriented reforms such as cooperatives and has called for price freeiea on food and consumer goods.s cochairman of tbe United Russian Workers Front, which opposes perestroyku as harmful to workers' interests,
Ivan Poloxkor
Polosko*oderate traditionalist who nonetheless supports scene important aspects ofeform program Elected first secretary of thc Russian Republic Communist Party in June, he is an old acquaintance of Gorbachev from their days as party officials in neighboring regions Polozkov has been reviled by the reformist intelligentsia nnd has been the objeel of an ongoing media diatribe. Polozkov. SS, hasesire to cooperateYel'tsin but has had virtually no influence over thc program being put forward by Yel'tsin and the Russian Supreme Soviet. Conflicts between the two men are likdy over the coming year. Although his formal position appears to makeajor player, divisions within tbe new Russian Communist Party and the fact that the program of the party's traditionalist majority is out of touch with trends in tbe country, arc already limiting his influence and relevance. tssssssssssfe
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Original document.
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