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The Soviet System in Crisis: Prospects for the Next Two Years

National Intelligence Estimate

This National Intelligence estimate represents tne views of the Director ot Central Intelligence with the advice end assistance ot the US Intelligence Community.


Directorate of Intelligence

The Soviet System in Crisis: Prospects for the Next Two Years

Information available as of9 was used In tho preparation of ihis National Intelligence Estimate

Ihe following intelligence canonizations participated in the preparation of this Estimate: The Central Intefcgeneeo Defense Intelligence Agency The NaeonaJ Security Agency The Bureau of Intelligence and Research. Department ol Stato

also paroopattng-

1 he Deputy Chief of Stafl for Intelligence.

Department ol the Army

The Drector of Navel Inte&gence.

Dcroanment of the Navy

The Assistant Chief of Stall, Intelligence.

Departmeni o' the Air Force

The Drector of Inietligonce.

Headquarteis, Manna Corps

This Estimate was approved for publication by the National foreign Intelligence Board.

The Soviet System in Crisis: Prospects for the Next Two Years

The Soviet domestic crisis will continue beyond the two years of this Estimate regardless of the policies the regime pursues. The regime will be preoccupied with domestic problems for years to come, will want to keep tensions with the United States low, and wilt probably still pursue agreements that reduce militaryand make resource trade-offs easier.

Despite the enormous problems he faces, Gorbachevosition in the leadership appears relatively secure, and he has increased power and political room to cope with the crisis.

There will be greater effort to define the limits of politicalougher approach on ethnic issues, and some retrenchment in media policy; but the process of political liberalization wilt expand with the legislature and independent political groups increasing in power at party expense.

The regime wilt concentrate on stabilizing the economy and, while pulling back on some reforms, will push for others designed to enlarge the role ofthe market and private enterprise.

Despite these efforts, we expectecline-in economic performance as well as further increase in domestic turmoil. Of several conceivable scenarios:

Community analysts consider it most likely that the regime will maintain the present course, intensifying reform while making some retreats.

ess likely scenario that all analysts believeossibility, the political turmoil aad economic decline will become unmanageable and leadepressive crackdown, effectively ending any serious reform effort. (Theeputy Director for Intelligence disagrees mth both scenarios. See pages 'ii and IS.)

Key Judgments

The crisis, precipitated by lone-simmering problems and Gorbachev's policiesddress them, will continue over the next two years and beyond and could threaten the system's viability:

problems are endemic: conflict between the center and regions will increase as will inter ethnic strife, and the regime can it best hope to manage and cope with these problems, not resolve them.

ills ate deeply footed in the system, and efforts to reform ii will bc slowed by the priority given to stabilizing the coot>omy.

At the same time changes in the Soviet leadership during the last year have made Gorbachev's position relatively secure over the next two years andore radical approach to addressing the nation's daunting problems. We believe:

power has been significantly enhanced with the weakening of (he leadership's orthodox wing and the developmentecond power base in the legislature.

The coming local and republic legislative elections and the party congress next October will probably further undermine the role of the party apparatus, increase the power of the legislature in decisionmaking, ande facto multiparty system to some republics.

More stringentincluding some retail price increasesomestic currencylikely to be imposed as part or the current economic stabilization program. Although the need to stabilize the economy has slowed the economic reform effort, wc expect to sec the introductionumber of controversiala redefiniCon of propertyew taxation system, and antitrustare designed to enlarge the role of ihe free market and private enterprise,

To pursue this course and arrest the growing feai of anarchy in the country, Gorbachev will try to rein in somewhat the now freewheeling Soviet press and be tougher in defining the boundaries of the political and economic autonomy for the country's minority nationalities; he already has and will continue lo use repressive measures If necessary to control communal violence or prevent secession

ln view of ihe continuing turmoil, whether Gorbachev caneformist course with sxrae uctical retrenchmeni is uoceruin and open to considerable debate. The next two years will undoubtedly be one of the nwst tumultuous periods in Soviet history.

Tangible benefits from ptrcsiroyka will bc relatively few, although intangibles (greater freedom and religious toleration) will be moreOverly ambitious targets for the production of consumer goods are unlikely to be met. Labor strikes arc certain. The enhanced role of thewill make needed austerity measures more difficult to pursue and likely compromises will reduce economic effectiveness.

Under those conditions, several scenarios are in the realm of possibility, but two are considered to be much more likely than the others. Most Community analysts hold the viewontinuation and intensification of the current course is most likely and believe that, despite the obvious difficulties, the turmoil will be manageable without the need for repressive measures so pervasive that the reform process is derailed:

paJitidzation of the populace along with the expanding authority of the legislature are changing tbe system, giving politicalroader and deeper base, and making it much more difficult and cosily lo lurn back the dock.

ethnic assertiveness will coniinue and Baltic peoples will strive for self-determination, the drive for secession will probably be blunted in this period by ihe regime's more sophisticated use of concessions and warnings and ihe desire of Baltic leaders io negotiate raiher than confront.

difficult as ihe economic situation will be, the regime probably can prevent the supplies of food and consumer goods from declining to ihe point of provoking large-scale unrest.

ess likely scenario that all acceptossibility, the ongoing turmoil will get only worse and lead the regime, with or without Gorbachev, to use massive force to hold the country together and save the regime:

will accelerate system fragmentation and make it impossible lo take necessary austerity and economic reform measures.

exacerbation of supplyan upsurge in strike activity, transportation bottlenecks, or severeincrease shortages and lead lo social upheaval.

While trying to avoid confrontation, the interest* of the Baltic peoples and Moscow are bound to clash dramatically, leading to much harsher measures by the centeregain control.

Events in Eastern Europe are certain toole in determining which scenario the USSR follows in the next (wo years. As long as the transformations in Eastern Europe do not spiral out of control, they willthe (rend toward radical reform in the Soviet Union. In (be unlikely event that Moscow deems it oecessary to use Soviet troops to restore order and prevent (be disintegration of the Warsaw Pact, pcrcstroyka in (be USSR would be, if not fatal, blow.

Either scenario points toward the continuation of current foreign and' security policies, at least for the two years of this Estimate. Gorbachev will still push hard for various arms control agreements. Eastern Europe will continue to have heretofore unthinkable leeway to democratize, effectively changing the Warsaw Pact into moreolitical allianceilitary one. Evenrackdown occurred under Gorbachev or another leader, the preoccupation with internal problems would be paramount, the desirevoid increased tensions high, and the effort to shift resources toward consumptionifferent regime would noi, however, be as inclined to make major concessionschieve various arms control agreements or be as accommodating to centrifugal trends in Eastern Europe.

Alternative View

The CIA's Deputy Director for Intelligence believes that the Estimate does not adequately capture (he likely scope of change in the USSR over the neat two years.

Assuming Gorbachev holds on to power and refrains from repression, the next two years arc likely toignificant progression toward asystem, accompaniedigher degree of political instability, sociil upheaval, and interethnic conflict than this Estimate judges probable. In these circumstances, we believe thereignificant chance that Gorbachev, during the period of this Estimate, will progressively lose control of events. The personal political strength he has accumulated is likely to erode, and his political position will be severely tested

The essence of ihc Soviet crisis is that neither the political system that Gorbachev is attempting to change nor (he emergent system he is fostering is likely to cope effectivelyewly mobilized popular demands and the

deepening economic crisis.



.eadcrship Showdown

the Turmoil Be Managed?

the Course

of Reform on Soviet Society


Repressiveess Likely Scenario

Alternative View

for the Future of the System

for Gorbachev's International Agenda and US Policy

Stays the Course


olitburo Today

Gorbachevtrong proponent of radical reform. Frequent target cf criticism by party conservatives.

Shevardnadze One of Gorbachev's strongeston both domestic and foreignnorthodox statements challenging ideologicalof foreign policy have arousedfrom Ugachev.

Ryzhkev. Haseading role in economicore moderate on political and social issuesriticised Gorbachev In July forparty duties but appears to be personallylashes with Ugachev reported.

Medreder. Ideology secretary in forefront af "new thinking" on foreign policy and radical economicore cautious on culturallso target of orthodox critics.

SlyunEconomics secretary who has been hedging on radicalome reports suggest not completely tn Gorbachev's camp.

irst Deputy Premier and Caspianmoderate onike hisRyzhkov. has better appreciation thanof difficulties of translating economic theory into practice

Zaykor. Secretary and. sinceirst Deputy Chairman of the Defenseraditionalist stand on some key reformay have lost clout when failed to derail Yeltsin election

Vorotnikm. Only other Politburo memberbefore Gorbachev tookncreasingly critical of political pluralism andnly other full member InSoviet.

Kryuehkav. KGB chief who reportedly has dose personal lies tochoed peirjtroyka ihemes9 Revolution Day speech but urgedhas publicly called for legislative oversight of KGB.

Ugachev. With Second secretary"powers now removed, less able to hinderiews political reform as dangerous, disruptive,pponents of reform may look to him asuestions about corruption still alive.


Soviet system is in crisis. While noting (he po'cniial for (uintoil inTJ*

Jht underestimated how quickly it would develop. The toou of (he crisis run deep inlo (be nature of (he Soviet stale and Russian history and have been nourished by decades of official Deglect. corruption, and ineptitude. But (be publics(riket. demoratralicru, and otherres toa direct result ofeffort to restructure ibe system. The turmoil that these developments have brought to the fore will continue and probably deepen.

This increased popular asseriiveness is in oneeasure of Gorbachev's success in destroyincof the Stalinist system. The pace and extent of (his change have exceeded even our relatively bullish forecast of two years ago; indeed, lhe new legislature is the beginning of systemic change His political reforms haveeduction in regimean expansion of civil liberties, greater tolerance of religiousroader range of permissible public discussion, and an opportunity for previously unrepresented groups toart of the system.

Gorbachevs policies are breaking the management and control mechanisms of Ihc old regime, however, before new ones are ready to assume these tasks. The effort toew political culture andof handling tbe flood of demands unleashed bystill in its infancy.

His policies, moteover. have yet toin some respects haveof the social and economic problems be inherited. His efforts toihe USSR's restive ethnic minorities have not halted their demands for greater independence from

[ ]

Moscow; indeed, the effort to accommodate (hem has ledtrong push for independence in (hestep that Mceco* will not allow but may not be able to stop without repression. And his economic policies have exacerbated serious shortages of consumer goods and services,ontinuation of popular discontent. Not surprisingly, there is widespreadin the country about the ability of tbe regime to overcome these problems.


Leadership Showdown

During the past year this turmoil led to anopen conflict withi? the Politburo:

Parly secretaries Ligachev and Cbebrikov among others seemed convinced that glasnoii and political reform in general had promoted disorder in the country and were destroying the leadership role of (be Communist Parly. These leaders made ilclear thai significant retrenchment was requited to save (he party and the country.

Gorbachev and others rejected reliance onremedies and argued that even more radical changes in ibe party and its policies were necessary to cope with the crisis and restore the party's authority.

That conflici led Gorbachevove decisively against the Politburo's orthodox wing al (he Central Committee plenum inemoving five full and candidate Politburo members and replacing (hem with moderate and reformist supporters of ptresiroyko. These changes have significantly altered the balance of power in lhe Politburo and effectively shattered itsed ox faction (seeheapproval of Gorbachev's proposal to conveneh Party Congress in Octobermonths

i el-

earlier thanallowedis plans lo bring new blood into tbe Central Committee, which has been another source of resis-laoce to bis reforms.

Gorbachev's success at the plenum was tbe latesteries of moves that have significantly strengthened bis political position in the leadership, including:

The Central Committee plenum inhen lieersonnel and organizational shakeupagnitude not seen since Khrushchev's lime.

The9 plenum, when he succeeded in purging aboutercent of the Centralsouls" who no longer held the jobs entitling themandidates, mostlyeformist stripe.

His acquisitionewly strengthened presidency in9 followedtreamlining of the government bureaucracy that had been resisiing his economic reforms (see inset).

The cumulative cflect of these moves has been to sharply reduce the threat posed byesult, wc believe his position in the leadership r. relatively secure for the next two years, although an Assassination attempt by an individual against him cannot bc ruled out.

Can Ibe Turmoil Be Managed?

Even with his power and authority enhanced,Gorbachev has not yet shown that hetrategy for dealingost of daunting problems his policies have cieaicd that defy easy solution and that by his own admission threaten perestroyka. On the one hand, he faces powerful pressures for more far-reaching changes:

The9 electrons revealed previouslygrassroots support for political reformesection of ihe party establishment ihat camehock to entrenched party bureaucrats as well as foreign analysts, an even greater repudiation is likely in the coming legislative elections at ihe republic and local levels, shifting authority further fiom party control loward ihe new legislative system.

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The level of ethnic mobilization in Ihe Baltic and Caucasus has sicnificanity increased Ihe pressures for independence and prornoicd articulation ofdemands that arc often irreconcilable with one another. Managing these centrifugal threats lo the state is now much more difficult and lhe political and social costs of reluming to ihc old ways of maintaining order much greater.

The worsening economic situation has produced mounting popular dissatisfactionave of strikes, intensifying the pressure on Ihe regimeive workers greater control over ihcr enterprises, to reduce the shortages of necessities and adopt more decisive economic policies. The regime so far has not been able lo respond effectively to this pressure

Al Ihe same time, he musi dealumber of strong barriers to change;

Although reduced in power, an entrenched party and government bureaucracy continues to resist reforms thai would lead to increased politicalgreater "markctiiaiion" of -heor other changes that would undermine its status and autonomy

Many Soviet citizens regard economic reforms that widen differentiations in wages, increase retail prices, and threaten unemployment as violations of lhe "social contractThis has been an important factor in delaying economic reforms thai for alt their promise would have such unpopular consequences.

Goteform Agenda and ike KGB

General Secretary Gorbachev needs lhe KGBeriod of political change to ensure his political survival, to monitor ihe compliance of local elites, and lo control burgeoning societal unrest. During the past year. Gorbachev has strengthened his hold on the security service first by transferring then KGB boss Viktor Chebrikov to the Central Com-millee Secretariatear later retiring him. Current KGB Chol'man Vladimirrecently vaulted to full Politburoa political ally of lhe General Secretary and has been an outspoken advocate ofparliamentary oversight of the KGB. Chief of the KGB Border Guard Directorate General Mairosov recently discussed his component's budgetearing of the Supreme Soviet Defense andCommittee, and later this foil Kryuchkov will submit the security services budget to theSoviet for ihe first time.

Some KGB officials ore concerned about the effecl of percstroyka and glasnost on KGB prestige and on the organization's ability to carry out its missionime of growing unrest.

The KGB on lhe whole, however, is apparently satisfied that Gorbachev's reforms do not threaten its prominent position. Despite some "KGBIn Iht Supreme Soviet end the press. Kryuchkov has been successful In defending many of the KGB's vested interests. Thus far. the KGB has taken fewer cuts in its personnel andthan either the Ministry of Internal Affairs or the Ministry of Defense. For example, although tht Fifth {Antidtssideni) Directorate has been abolished and the Third Chief (MtliiaryDirectorate has been trimmed, many of their personnel have been assignedew epartment formed to fight organiied crime. Moreover. KGB departments In the Caucasus and Central Asia remain active in investigating natlon-atlttthe leadership'sneed for the KGB's domestic role tocontrol.

The disorder thaistrikes, civil unrest, inflation, and increased crime-is anathema not only to institutions like the KGB and the military but also to large set menu ot the general population (see ioldout map.l Ihen authoritarian and paternalistichas instilled in many tbe belief lhal tbe only alternativetrong hand at the center is anarchy (see inset).

esult of these pressures and the greater latitude for action he has achieved within the Soviet elite. Community analysts now eipect Gorbachev to press aheadomestic agenda that combines an intensification of political reform andougher approach lo patty discipline, ethnic otrcmism. and media policy. Whether he can maintainourse given the tunnoil and

pressures is uncertain and the subject of strong debate int of the Intelligence Community. This silualion could move in several different directions, but most analysts believe two are much more likely than others: "staying the course" andepressive crackdown" (see irtsel.

Slaying the Course

The most likely scenario in the view of Community analysts is that Gorbachev will be able to keep the reform process going and ovoid resorting to draconian measures that would roll back the trend toward greater pluralism and democratization.

figure 3

USSR: Reported Incidents of Unreal by Type.9

Oilier poliliioil ucu*




faacuon.rchponatKnUM. mcolngi .ml


judgment rests in pan on our assessment of Gorbachev, his agenda and his ability. Alihougbetailed blueprint, be hu been enormously successful in using and defining ihe sense of crisis innddrive increasingly radical solutions to Soviet ills. His policies call into question, whether intentionally or not. the role of the Communisl Party, iis ideology, (he Stalinist economic system, and ihe center's dominance of the regions. As the sense of crisis has mounted, only he in the leadeiship appears to have the ability lo manage the lurmoil his own policies have stimulated. Al the same time, he is floibleot gelling loo far

ahead of what his colleagues can tolerateiven moment; he has made tactical adjustments andretreats lo cope wiih both political and policy consequences of reform.

Our assessment of the likelihood of Ihis scenario also reflects judgments about the manageability of the reform process and the turmoil it has crealod. Forces have now been unleashed in the USSR thaiife of Iheir own. weakening ihe regime's control over events. The lurmoil will continue under this or any other scenario Most Community analysis believe Ihe

lhe intelligence Community considers the two scenarios presented in this Estimate to be the most likely, three other generalfar lessat least conceivable:

Success story. The regime could move much more auickly and skillfully on economicthan we anticipate, be far moreon demands for ethnic autonomy, and more receptive to sharing political power with forces outside Ihe Communist Party.cenario would see the economy revive, thenhanced by genuine devolution ofpolitical and economic po-fr to notional minorities,table transition towarddemocracy lhal did notin Poland. Hungary, and Eastviability of the Communist Party.

' Social revolution. At the opposite end of the spectrum. Gorbachev's concessions to thesevere weakening of all major regime

institutions, and incompetence In managing the economy could lead to his losing control of the situation. Ethnic violence and separatistIncreasingly potent challenges toParty rule, and catastrophic iconomlc deterioration could lead to large-scaleand perhaps social revolution. This could include the breakaway of many non-Russian republicsrolonged period of civil war.

' Return to aeo-SlmJimism. The threat of Imminent social revolution couldoup against Gorbachev that would not only lead loem bui also to the imposition of political repression more severe than during the Breihnev years. This scenario would Involve the massive use of military force to rdmpose order. The effort would certainty be bloody and would onlyover timesystemic crisis, not resolve it.

regime can cope with it and press ahead, haltingly and unevenly at times, with the reform process:

A mote open legislative process with real elections, debate, and votes is Decerning institutionalized. The population is becoming more involved andenlarging Ihe consutuency favoring change and making it much more difficult lo alter course.

Although strikes and shortages will continue, the regime will be able to maintain supplies,food,evel sufficient to avoid widespread social disruptions; the population, as it has in lhe pasi will grudgingly endure Ihe privations, giving the regime more time lo get its economic strategy implemented.


fif mlebate it ike Sapreme Soviet left lo right Chairmen af lhe Covetil of NeHoaaliites. Nilhanov.eputy Chairmen of lhe Supreme Soviet. Utk jwov. Chairman af the Supreme Sotiel Gorbachev: Chairman of ihe Cornell af ihr Union. Primakov: end

Deputy Chairman of Ihr COuae-tof Iht Union. Makove.

of deputies and local Soviets are being held late this yearand early next, further drawing the populace into the political process and increasing the pressure on the system to respond. The party congress already set for0 will complete theof the party and its Central Committee, shifting the political balance strongly toward acourse.

Despite this progress, the reformers recognize (hat they have far to go toolitical culture and institutions capable of dealing with (he demands reforms have unleashed. They are trying to ensure that (he new legislative institutionsenuine measure of power and that the Soviet people have some real influence in selecting their representatives.

Al the same time (hey wan! to achieve thesewhileational single-party system in which much power remains concentrated at (he (op. Gorbachev seems prepared to give these newa substantial degree of independence and to permit considerable pluralism within them, however, in order to obtain his larger reform objectives. As is already evident, achievingalance will be difficult, requiring consistent effort to make the party mote inclusive of diverse opinions while reining in those who exceed the limits.

In addition to strengthening lhe role of the legislature, we believe Gorbachev will attempt to restore the parly's deteriorating position. His speeches and

actions indicate lhalwarns (he party io shape Ihe reform process rather lhan be pulled alone by it- To do this he iniends io use lhe coming local and republic elections and (he parly congressiscredii further lhe opponents of reform and bring more new blood inio Ihe apparatus.

This reform process will weaken an alreadynomenklatura and could destroy it if allowed

ontinue for much longer. The new blood will align lhe party more clearly with reform efforts, as it already has in the Baltic, and perhaps give it greater credibility.arty would be vastly different from its Leninist predecessor, however, less responsive to Moscow's edicts and more closely tied to its local constituency, lis distinctive claimule would be eroded even further as it faced strong competition at the local level from groups (de facto political parties) urging support for their own agendas. Whetheror not. the reform wilL in our view, hasten the

ongoing shift of power, legitimacy, and action away

from the parly to oiher institutions, particularly the


We also expect Gorbachev to give new emphasis to his callociety based on law as part of his efforttrengthen the regime's legitimacy. Actuallythe rule of law would require steps the regime so far has been reluctant to lake: codification and implementation of such ideas as the independence of the judiciary, (he subordination of the government to (he law, and an emphasis on the freedom of the individual, rather than the individual's obligations to ihe state. In the "halfway house" Gorbachev is trying to create, we expect coming legalnew criminal legislation and laws on economic activity and Ihemake sieps in those directions but continue Io stress lhe regime's rights over those of its citizens.

Nationality Policy. Initially. Gorbachev paid link aiiention to nationality problems; indeed, he appearsave assumed that reform would not encounter obstacles on this front.esult, the regime has been struggling ever since to get ahead of (heNationalism has flourished in the more open atmosphere of glasnost and public debate. The regime lias allowed changes that would have been unthrnk-

Gorbecher's Nationalities Policy

To help ease the Soviet Union's nationalities problem. Gorbachevrogram that would include:

The transition of the USSRe facto unitary empirenion with real federative content.

Constitutional delimitation of the functions of the center and the republics,ignificant increase in the authority allocated to the republics.

Removal of discriminatory and provocative obstacles to the development of non-Russian languages end cultures.

Equalisation of the rights of all nationalities.

- Integration of the republicsingle unionwide economy, in which the "socialist market" harmonizes the interests of thewhole with those of Its ethnic parts.

ew years ago. but this accommodalion has encouraged more demands rather than limited (hem (see roldout map, figure II ai (he back).

The nationality policy adopted at the9 plenum indicates thai Gorbachev's willingness io give ihe republics greater political and economic autonomy has certain clearly defined limits (seen hts speech he aftirmed that each nationality had lhe right Of sclf-dclermination bui noted thai this concept wasone-time aci connected with secession" but (he right to develop culturally and economically within the existing state structure. Gorbachev also has ruled out any shifting of borders and rejected the splitting or the Communist Party along elhnic or republic lines. Moreover, his stress on an integrated market and ihc

r igure S

USSR: Dutribuiion ol* Reported Unrest aad of Population by Republics.9

td of Umal

raw ms Census

of (be economic inlerderwndence of tbe icpub-Ira appears to be aimed at reining ia the growing zeal among nationalists, especially in the Baltic republics, for virtual economic and political independence from Moscow.

Community analysts believe Gorbachev is fullyto use (dree, if necessary, to control the kind of interelhnic violence lhal broke out over the disputed territory of Nagorno-Karabakh in the Caucasus; the leeatabhshment of la* and order in such cases would not be incompatibleeform objectives. On tbe other hand, most expect him lo make every effort to avoid the use of force lo qucII nationalist demands for political independence in Ihemove thai would clearly enforce limits on glasnoti,und olher reforms, and cosi htm some of the

international goodwill derived from his liberalization and his diplomatic iniliaiivcs.

The political challenge io Soviet rule is the greatest in lhe Baltics, where actions in support of eventual secession will continue to test Moscow's patience and iolerance. Most analysts believe thereecent prospect that the regime's willingness ioecree of autonomy unthinkable in the past along with warnings of what is not now possible will -blunt immediate demands for secession. Some Balticare aware of the dangers of going loo far, are looking for compromise, and seem inclined to avoid confrontation. This appioach could wella pitched battle over independence for some time.


Even if this fails, we believe Ihe leadership would fust exhaust all iu political and economic Icvcrafe toationalist retreat from nracccpublc demands before turning to military intervention. For example:

Central ministries could be directed to ciertpressure by bargaining over delivery prices or even delaying the delivery of fuel, and blocking foreign financial ventures.

Moscow might emphasize its disapproval bythe visibility of security (MVD and KGB) personnel or miliury units already present in the Baltics and seal Ihe borders, hoping to cowandajor bloodletting

Advocacy of secession could be criminalized and its advocates prevented from seeking elective office or even arrested.

Russian minority in the Baltic could bc spurredse strikes or work stoppages lo lie up the local economies-Gorbachev undoubtedly recognizes that Ibese options carry (he risk of provoking demonstrationsituation that could ultimately trap the leadership into sending in troops. The risk would be less, however, than that associatedeneral crackdown in the Baltic republics, which most believe would be used onlyast resort. Even this latter course would be less risky for him and the system than letting the Baltic republics go This move would encourage other much larger nationalities, such as Ukrainians, lo seek similar goals and make regime survival problematic at best.

The Economy. Tht USSR's swelling budget deficit, Spiraling inflation rate, and continuing shortages of consumer goods (bieaien not only the country'swell-being but peratroyka itself. Because of this, we expect Gorbachev to give special emphasisew economic stabilization program designed io slash the budget deficit, (educe the rublend provide some immediate relief lo (be consumer.


The plan0 is to cut (he budget deficit in half by reducing spending for invcstmenl and defense and by increasing revenues through various means.

Bonds and state bousing win be offered toand individual citizens to soak up excess liquidity.

Stiff taxes have been imposed on wage hikes of moreercent unless related lo increased output of consumer goods.

Production of consumer goods is programmedrow byercent0 over ibe planned levelnd imports of industrial consumer goods arc scheduled to rise byercent per year this year and ncxi.

This stabilization program, however, will not achieve ihe desired objectives. Tbe regime apparentlythis and is reportedly considering more stringent measures to help stabilize the economy. This couldurrencyconversion of old rubles into new ones al different rales depending on the size or form of holdings. Price increases on heavily subsidized bask goods and services, which we believe arc necessary toold on the monetaryarc apparently notraft blueprint for economic reform that is currently under discussion callseieguiauon of retail prices only on luxury items, most imported goods, and bigh-quality foods and delicacies beginning1 Tie rising tide of consumer dissatisfaction, combined with theincreased authority and responsiveness lo public opinion, will make il difficult for the leadership lo adopt the tougher austerity measures needed loihe economy's health.



Figure 6

USSR: Summaryelected Indicators of Consumer Welfare

O No, -



eornutnpuCa per cipiu


and fnul


car? ind repair if iviors


of Ot UIVUOn.Mti

n imi+mi by oxapiriagaa iodravat's ntr ol growr*.ib* powdi raw achieved during IvII-IV il* Ii*-year powd (hat ptocntod iht Gorbachev era.

Based on ClA analyiu* judgments of tht prnrpuoeiuiu in Iheow living aindaidihinged undo Goibichev-throughiii comparison wiUi lhe lust UaJf of

ProjMUom bawd on dan 'or9 tompuol to the iame penod

No prrforaiaocc meaiwu ire(or ihn indicaioi becauxlackn prrfemunce dazing itn batrliac pcricd. IMI-8J

The seventy of the economic situation hu forced the regime to backtrack: on those economic reforms that would exacerbate the fiscal dilemma, hurt theand rmdermine popular support for ptra-iroyka (tne inset,. Gorbachev regards thisemporary retreat, however, and we expect him to continue his efforts toore coherent plan for enlarging the role of the free market and private enterprise that will lay the groundwork for theof more far-reaching measures when the economy is more stable These measures include:

A new corporate and individual income tax system.

Antitrust legislation designed to break up themassive production conglomerates andcoenpetmon

A redefinition of property rights that puts the socialist and cooperative/private sectorsore equal footing.

An overhaul of the monetary/financial system to increase the ability of central authorities to employ economic rather than administrative levers.

ove driven more by politics than economics, Gorbachev will coniinue to provide strong support for efforts to give the republics greaterystem known as regional self-financing. This decentralization of economic authority isto assuage some of the republics" demands for

- aWanaga,


Regional Self-Financing

The Law on Regional Self-Financing, scheduled for nationwide implementationill give the republics more authority over and responsibility for the production of food,goods, services, and local construction. According to preliminary Soviet calculations, the overall output of Industrial productionthe jurisdiction of lhe republics it expected IO increase, on the average, from the current levelercent toercent of the USSR's total production. To Involve the republics more directly in the effort to Increase productivity, each republic's budget will be made moreon Iheprofiis of Its enterprises. The republics' economic plans, however, willto be dominated by state orders and "controlstablished by Moscow, and keyof the economy, strategic planning, and control over resources and financial policies will be left in Moscow's hands.

independence while at the same lime making them more accountable Tor Iheir economic(sec inset).

Impact of Reform on Sotiel Society

The Soviet system dearly is changing dramatically. Unlike the leaders in China. Gorbachev appears to believe that the new order must be built onof political and social legitimacy if it is to succeed. But icform is often more difficult than revolution, and tbe genies he has released will defy the boundaries the system iries to place around ibem.

Although Gorbachev's economic policies point in the right direction, we believe they are unlikely .to bring any substantial improvement in economicduring the neat two years and the situation could get worse, particularly this winter when food supplies will decline and spot fuel shortages may increase:

The deficit will remain high, there will be little economic growth, and the demand for goods and services will greatly exceed their supply.


ambitious targets for the production ofgoods are unlikely lo be met Some modest improvements are possible,will) tbe cuts in defensegains will come slowly because of the long lead dines involved in shifting production capacity toward consumer goods and bc restricted to reliefew areas. Rationing and periodic runs on scarce goods will continue

reforms will put increased financial pressure on the enterprises and should help reduce redundant labor and some waste of materials. But these benefits too will be slow in coming and probably outweighed by dislocations, such asand other disruptions resulting from the conflicting signals that piecemeal implementation of reforms will continue to create.

regional autonomy could eventually make ihe distribution of food more efficient by reducing Moscow's role as the chief bottleneck in an overly cenlraliied system. Thus far, however, local officials arc introducing protectionist measures that arc causing even more disruption and disequilibrium in national balances.

Antimonopoly legislation and other reforms now under consideration hold some promise for the future but will only begin lo take root during the period under consideration

If Gorbachevore radical approach on monetary stabilization, the economic and political environment for reforms could improve, allowing bim to at least push ahead rather lhan delay

Gorbachev's political reforms have more potential to produce results ihat would make any effort lo turn back the clock more difficult and costly:

His electoral reforms appear lo be mobilizing the population, creating channels through which its interests can be expressed, and making officials more accountableheir constituencies

The boundaries of intraparty dialogue will probably etpand even further, making any return to "demo-ciaiic centralism" less likely.

Although the new Supreme Soviet will not achieve ihe roleestern legislature in the nexi two years, il is no longer Ihe rubberstamp organization it once was. and ihe leadership will have to take it increasingly into account. This will provide afor citizen involvement in decisionmaking, give theore accurate barometer ofopinion, and have an impact on important legislation.

The challenge of contestedto party or statewill force ibe party lo engageenuine dialogue with oiherIncluding informal politicallthough official oppositionultiparty system willthese new groups arc already operating like parties and in many regions could become the governing authority, replacing the Communist

The radical tiansformalions under way in Easlirn Europe are likely toajor impact on the fate of perairoyka in the USSR. As long as widespread domestic violence is avoided, anti-Sovictisrn held in check, and Warsaw Pact membership maintained, Gorbachev appears willing lo tolerate almost any political change in East Europeanthe demise of the Communis! parties. Aof such fundamental reform in Eastern Europe will reinforce ihe trend toward ihe thus far much less radical reform in the Soviet Union. Although the stakes are far greater al home. Gorbachev'sio accept multiparty systems in Eastern Europe will over time make il more difficult for him to rejectourse for the USSR.

Peretiroyko in the Soviet Union and Gorbachev's own political survival would be threatened, however, if events in Eastern Europe were to spiral completely out of control or lake on an aggressively anli-Soviet character. Such aif it occurred in East Germany or Poland and threatened theof Soviet troops stationedputpressure on Gorbachev to use Soviet forces to restore order and prevent Ihe breakup of the alliance An attempt to do so would lead to bloody reptesston, freeze relations with the West, and halt

Figure 9

Growth of Rationing in tbe USSR

in the USSR. If Gorbachev resisted usine Soviet forces in this scenario, orthodox elements in the party, tbe military, and the security services would almost certainly attempt lo oust him. Their success, which would be followediolenton .Eastern Europe, would set back percstroyka fat years, if not kill it entirely.

A Repressiveess likely Scenario

ess likely scenario for tbe course of events in the USSR over the neat two years that all analysts acknowledgeossibility In this scenario the (urmoil becomes unmanageable and so threatening to the sysiem (hat lhe requirements of survival leadassive crackdown, ending rcfotm efforts for some lime to come. Several developments could leaduch an outcome:

The virtual certainty of continuing instability on all fronts could drive the leadership in an ever more ortbodo* direction thai Gorbachev will be unable to resist tf he wants to slay in office Current attempts to rein in (be media and draw clearer lines on nationality policy may poricndourse.

The economy could decline much further over the next two years. Severe shortages of food and fuel this winter would be especially dangerous for the regime This situation would substantially increase the prospect of regime-threatening labor strife and make Ihe likelihoodepressive crackdown much greater.

Baltic nationalists could push so bard fortonfrontation over (his issue cannot bc avoided and would force the regime lo useforce to maintain Soviet rule. Less repressive measures may not prevent secession.

rackdown would not be so easy now. Tbe polilictzation of society has gone quite far. Ethnic minorities will not readily give up their gains and hopes for the future. The longer the current reform process Is allowed to continue the more difficult and probably bloody would be any attempt to repress it. The institutional support for repression, nonethelest, remains and would in the view of most analysts still bc able to regain some control over society if ordered into action.

epressive regime would retreat lo policies that would be less disruptive than the present brand of pfttst'oyka* While perhaps pursuing nominally re formist policies, the assault on the fundamentals ol the Stalinist system would stop, and the reforms that threaten ihe party and Moscow's control of the empire would be reversed. This path would increase order ai the expense of decentralization, democraiization. and human rights. It migb( in the short run improve government performance by returning to well-known principles of management. It would not address the fundamental economic and social problems now plaguing the Soviet Union. It may be only able to reimpose calmelatively short period, making the eventual storm far greater than the one facing the regime now.

In (he economic sphere, retrenchment would mean adoptionore orthodox approach, deviating less markedly from the traditional Soviet model. Such an approach would place less emphasis on market forces, strengthen ministerial controls, and give theless decisionmaking discretion. Ii would also impose stricter limitations on private businessesindividual labor, and leasing arrangements by reducing the scope of such activities, introducing stricter eligibility requirements for those engaging in them, and revising the tax structure in ways to make

the private sector less attractive. Soviet advocatesapproach still believe economic gains arestricter work discipline, the introductiontechnology,rackdown on flagrantwould be an even greater retrenchmentand tbe liberalization process. Effortsmade to increase central control over tbeand to restrict the Supreme Soviet'sThis would quite likely requirejudged to be unconstitutional in theof Supreme Soviet and Congressby decree, perhaps shutting down theand use of

the party, emphasis would be placed on unity ratherluralism of views; theof unofficial groups would also be prohibited.

The range of permissible public and mediawould bc significantly narrowed, overtwould return, access to information from the West would be reduced, and opportunities for Soviet citizens to travel abroad would become more limited.

rights generally would be much morethan now; the security services would once again have relatively free rein to deal withnationalists, and strikers.

Underetrenchment, the regime also over lime would become much less willing to make significant concessions to ethnic demands, fearing this would strengthen the hand of those who want nothing less than complete political independence. There would be less reluctance to use draconian measures to put down ethnic strikes and demo nitrations that threatened central authority or damaged the national economy. And the planned experiments in regional economicto assuage the demands forpoliticallikely-beor sharply curtailed.

An Alternative View

The CIA'* Deputy Director lot Intelligence believes (Imt (he hist of the two main scenarios piescntcd in the Estimate does not adequately capture Ihe likely scope of change in Ibe USSR over tbe next two years and that the second is not at all the inevitable alternative

Assuming Gorbachev holds on to power and refrains from repression, the next two years are likely toignificant progression toward asystem, accompanied by adegree of political instability, social upheaval, and inter ethnic conflict than this Estimate judgesIn these circumstances, we believe thereignificant chance that Gorbachev will progressively lose control of ihe situation. During the period of this Estimate, the persona! political strength be hasis likely to erode and his political position will be severely tested.

Implications for the Future of (he System

The Intelligence Community believes thatpolitical reforms are designed lo strengthen Ihe regime's legitimacy by giving Soviet citizens (he ability to improve their lives by working through the system. To achieve that legitimacy, however, the system must bc able io produce the desirednamely, real improvement in the quality of Soviet life. The modest improvemcnis we expect in consumer goods and services over the next few years are likelyall far short of thai goal bul may be sufficient to buy the regime additional time for its policies lo take hold.

1 Tie ume reforms required to strengthen the system's legitimacy, however, are also certain lo make the next few years some of the most turbulent andin Soviet history Even though Gorbachev'sabout potential consumer backlash has caused

The essence of ihe Soviet crisis is that neither the political system that Gorbachev is attempting to change nor the emergent system he is fostering is likelyope effectively with newly mobilized popular demands and tbe deepening economic crisis.

Gorbachev and the Soviet regime will increasingly be confronted by the choice of accedingubstantial lots of political and economic control or attempting to enforce harsheconomic and political. Such limits arc not acceptable to nationality groups Ihat want meaningful autonomy, lo new political organizations and individuals wbo want full political freedom, or to the general cilizcnry.who. as workers and consumers, want immediate improvement in what Ihey know toeteriorating standard of living.rogram that could stabilize the economy and prepaie Ihe way for serious economic reforms would require reductions in consumer subsidies and otherainfu thehopes of producing more consumer goods, including the conversion of defense industries, are unlikely to yield substantia! results during the period of this Estimate


lo pull back on some of his economic reforms, his attemptevitalize lhe Soviet economy will prove highly disruptive:

The Stalinist ece*ornie mechanism is broken, but the failure ioew one to do its job has resulted in confusion and contributed to thestagnation.

His elTorl to improve economic efficiency bythe number of excess workers may require many of them to Uke less attractivelower pay or in leu desirable locations.

Social tensions abo will be exacerbated by fab attempt to make wages more dependent onmove that workers accustomed to the traditional "free lunch" find threatening.

Resentment of those enriching themselves in the private sector already has led to outbursts ofand retribution and is likely to increase as the gap in the incomes of productive and unproductive workers widens.

We believe Gorbachev's policy of gtatrtoif will help toisaffected populace andent for the frustrations that built up under Brcrhncv. but it will also encourage activities the regime linnsthe mobilization of groups advancing ideas mimical lo state interests, such as lhe separatist movements of minority nationalities. The modeston this front will reduce the damage but not eliminate tbe problem. Gorbachev's electoralaie intended lo channel this new political activism into official institutions, but under lheof glasnosi, groups are issuing demands that challenge central authority and could eventually form lhe basisolitical opposition.ourse can ultimately work only if there is at least broadof lhe Soviet stale.

In our view, the growing assert rveoess of tbe Soviet Union's minority nationalities willignificant challenge io the stability of the Soviet system during this period. Il also is increasing the tensions between the republics' name and Russian populations. As a

result, Russian nationalist organizations, including Ihc more hardline groups such as Pamyai, arc likdy to grow bolder and gain increased support.

The regime's more repressive approach since last year in thecontinued martial law inand Azerbaijan and harsh suppression ofinbe accompanied by some concessions, including legislation designed io give republics in thb region and elsewhere greaterindependence and protect tbe rights of scattered nationalities. Gorbachevttempting tonew mechanisms to deal with constitutional db-pules belween Moscow and the republicsay of keeping such grtcvanoei within official channels. (

The USSR will be plagued by serious labor unrest over the next two years. Strikes will continue as economic conditions fail to meet popular demands. Gorbachev's conciliatory handling of Ihe nationwide coal miners' walkout last summer has legitimized strikes in the minds of Soviet workers, who no longer fear thai Ibe regime will use force to break strikes.ikdy to face several strikes al any given time; most will probably be small, bul some might involve tens or hundreds of thousands of workers al large enterprises oriy. Although no general strike* over economic problems appearthe possibility cannot be ruled out, especially if distress over rationing spreads and intensifies.

We believe Gorbachev will continue lo rdy onrather lhan violent suppression, to end any strikes thai break out. In some cases, he probably will insist or, strict enforcement of tbe new law on labor disputes, which went into effect in late October and requires several weeks of collective bargaining before workers may legallytrike. Tbe law bans strikes ouiright in strategic sectors of tbe economy, such as energy, transportation, public works and utilities, as well as La. and order agencies, and violators may be fined or even hied. Strikers may attempt to thwart application of these sanctions, however, by walking out in large numbers.

Whose Pereslroylta: The Political Spectrum in the USSR

like the creationultiparty system, economic reform, preservation of the Sovietend the limits of |lasnost have brought the political spectrum in society and the regime into sharp focus. Both have fractured into general groups, from party traditionalists on the right to radical reformers on ihe left. There are also small factions on the extreme left and right of this spectrum.

Party traditionalists support perestroyka Interms, but have little tolerance for what they perceive as the step-by-step dismantling ofideology. They believe that political and economic centralization, under the leadership of the Communist Party. Is one of the chief reasons that the Soviet Union has achieved superpower status.esult, they are loath to accept criticism of the Soviethe trials andof the Stalin era or the "stagnation" of the Brezhnevprefer to emphasize theaccomplishments of Soviet power. Theyoppose political pluralism and privateactivity. Many in this groupxervnahobtc mistrust of foreign influences andassuming thai closer ties to the West will subvert socialist values. Within society at large, groups like the Uniied Workers' Frontthese positions: among Politburo members, only Ugachev represents this view.

stablishmeat"radicals seek to reform society by transforming society's institutions, beginning with the party. They seek to preserve single-party rule, bulevamped Communist Party. They support greater republic economic autonomy and some concessionsree market system, but they insist on the preservationtrong, united Soviet Union. Glasnost to this groupeans of opening up society to the changes that areto revive political life and awaken economic reform; theirslasnost with distinct, albeit liberal, boundaries. Gorbachev, Yakovlev, Medve-dev, and Shevardnadze are the Politburo members most Identified wltk this mindset.

"Antiestablishmeat" radicals in general draw their inspiration from Western nonsociaUst models and support fundamental changes in the political system and the injection of market forces in the economy. They believe strongly in political pluralism, some stressing genuine competition among rival parties. Some, including Yel'tsin. emphasize social Justice and the abolition of nomenklatura privileges. Many, like Sakharov, believe that the CPSU should be legallyto the Supreme Soviet.

potential threat to (he stability of the system is the gloving openness in questioning the necessity for one-partydevelopment Ihat is likely to escalate with ihe formationon Communist government in Poland and eventually in Hungary. We believe most of the newly formed groups, with then highly parochial agendas, will find it difficult lo coalesceountiywidc alternative to theParty. If the pressure for political pluralism grows. Gorbachev might eventuallyystem ihat allowed nominal organisedlo the party to build regime credibility. For the near term, however, we believe his strategy ofthe scope of inlraparty debate and allowing some nonparty criticism of government decisions maythe need forove (sec inset)

These threats will not go away and could leadorbachev's downfall and the demise of reform. His program of allowing gicatcr pluralism of expression and expanded popular participation in the political

-Saoroi -

and ike Military; Living With Perestroyka

Since becoming General Secretary. Gorbachev has challenged the military's priority status andparly control over it. Gorbachev purged lhe Defense Ministry's senior leadership andomparative outsider. Gen, Dmilriy Yaxov. as Defense Minister, who was mandated lo accelerate perestroyka in the armed forces. Since thenhas kept up the heat on the military. He pushed the General Staff to help him work out the unilateral conventional force cuts announced in8 and to formulate conventional and strategic arms reduction proposals that. Ifwould mean targe reductions In military manpower and capabilities. Simultaneously. Gorbachev hasrogram convertingindustrial capabilities to support the civil economy. Working through the newly empowered Supreme Soviet. Gorbachev has forced theto open its books andubmit lis budget and some personnel policies to parliamentary

Il has been difficult foe the military to assimilate all thts. The manpower reductions, for example, are testing ihe armed forces' ability to efficiently select officers for discharge and resettle their families. Nationalism has become another serious problem as non-Russians refuse to serve outside their home regions and hating end bullyingtake on an ethnic cast. Because the

government has frequently used army troops to backstop overextended Interior Ministry assets, the military has become the focus of blame for excesses Incurred during police actions against battling ethnic groups. This has added lo the surprisingly virulent antimllUarism that has emerged In response to media criticism of military problems. Several Soviet officers have complained to Americans that all these changes haveto lower the prestige of the-mllliary.

Gorbachev has firm control over the military. He' has reduced military Influence in national security decisionmaking and made cult lo the defense budget. He hasore malleable high command, led by officers, such as Yaiov and General Staff chief Moiseyev. who ere morebeholden lo lhe General Secretary.sources Indicate that Yatov. who isandidate Politburo member, does noiominant role in national decisionmaking. The military is continuing lo voice its opinion and speak out against reforms that It considersas the creation of an all-volunieer cmedthere is little it can do if the government and parliament insist on Ihe changes.

is predicated on tbe belief that the Soviet population is fur>damentally loyal to the stale, that the interests of important social croups can largely be accommodated within lhe system, and that even non-Russian groups like the Baltic peoples seekingcan eventually be co-opted into sctiling for greater autonomy. He is trying lo demonstrate that reform can be manageday that avoids loss of regime control of the process and heads off pressure for more radical reforms thai would truly icvulution-izc Ihe system. He is. thus, engagedamble of enormous propoitions and uncertain consequences.

Implications foi Gorbachevs International Agi-mln and US Polky

Gorbachev Stays tbe Course

If Gorbachev remains in power and avoids having to retrench significantly.expect little change in the direction of his foreign policy. He will stillressing needtable international atmosphere that will allow him lo concentrate on percstroyka and to shift funds from defense to the domestic economy. Upoint, the prospect of continuing turmoil ai home will letnloiceavorespite from East-Weil tensions (see inset).

2 l

i Sactat,

eipeci Gorbachev lo:

hard for conclusion of arms controlwiih ihe West.

ibe base of the improvement in telaiions wiih (bc United States and Western Europe and seek to shape the evolution of the European securilj order.

- Go further to defuse human right*ontentious issue in US-Soviet relations.

Remain tolerant of changes in Eastern Europe that reduce Soviet influence.

Consolidate the rapprochement with China.

Seek to reduce military commitments in the Third World and avoid confrontation with the United Sutet.

Step up effortsake tbe USSRore credible player in the international economic

Retrench men I

The retrenchment scenario sketched out above would make Moscow:

Less likely to make meaningful unilateral arms control coocessiotis ot miliury reductions.

Less tolerant of liberalization in Eastern Europe, but unwilling lo attempt to regain whal has been lost

supportive of leftist allies abroad.

reluctant to undertake any radicalof ihe Soviet military and security services.

A more oftbodoa Communist regime's harder lineange of foreign aod domestic issues would ccruinly increase East-West tensions, bul the new regime would try io limit tbe damage. We see little chance thategime would find it in tbe Soviet interest io revert to an Openly confrontational strategy toward tbe West that wouldajor new military buildup or significant riskukiog In ihe Third World. In fact, iu preoccupation with the problems oforder and consumer discontent would place some limits on iu ability to shift resources back to the defense sector. It would probably implement arms control agreemenU already reached bul be less in-clined te make concessions to complete those still being negotiated.

Original document.

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