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USSR Review
Contents
Settling tba Dttatt oa RtusoMbl*
Gorbachev's recent announcement at tho United Nationi ofunilateral foiceulmination of the "reasonable suffidencV' debate, at loait ai it applies to the lilh Frrc-Year Defense Plan (FYDPk Bat rrea, before that anru^ncemeot, military leaders, in the Uie summer and early fall of 1MB, bare said tbe miliary would probably recetw, Usa co.uiear.eevt so tbe future and would Iiase lo seea. qualitative Improreoimt. to compensate Tor the lack of emanuutrre isKresssea. Durtageo. to argue for tbetr rente* of,
becommg rrsorr aggressive la crtlsoriBg tbe rrttblary's lack ufthinking" sod ha bandog of dbdrame probkesw.
ouanvah far Na.nl Arssss Ceuvlret IJudtlng
Sofcaaarlaw
A, recent staiernent by ibe Chief of the General Sufi- suggests the Soviets' intention to seek negotiated limits on tbe number of general rwrpose submarines, including nuclear-powered aliack submarines. In the Soviet and US navies. The major forum for this effort is likely to be START. Inn tbe Issue probably will affect oiber ongoing negotiation, and be panoviet bid for new negotiations centered on naval arms control as well.
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GtKbaehev would like louman ri|hu conference la Moscow to Improve the USSR't image .broad andi, program for deeneatic reform. Hia recent pemtieal triumph probably provides htm lee-t, rt,hmore crthcelo, member, ofW>iP to taint, torr* of Lb* Wesl, erneri. for holding lb. mwrtUg. At the tame nme, mi desire to brlag tbc Varan, raeetrag of Ibc Cc.fCTc.ee oo^cant,iou in Earns*mk* escaeT*^ egine the.ddiuoeal le-erage ia hording out for further liberalLtaticn of human righu.
Th. serin IM9 Feonemk PUtc CaaCortacherwnbe,omunw.
9 plan tabttantially elevates the priority of costntmcr -eiftrc bat, i. oar radgrrtent, doet aot tareey twdstcteai rcwoorem to back uppreotised irtereates iaiUt-htr of goods and services.
for pagaaajaag -elf.rc is eoniributing to tamUivulTgre^ Mite budget deficit, and manager, are expected to meet ambtuoot predHotion largeta while accrenmetdeting mi mere* t. probably dit. rupiive, hangea In the economic system.
Sedrta* Imports Frcan ih* West Wfcj the Nmrnttn 23
Mompw'i much pc Di.ci icd coo can over ihe need toodem-Ik the ectwomv and, mote recently, to address consumer discontent bai led many Weslssume thai Gorbachev tain have to lorn lo ihe Weal for major economic and financial assistance. The recent spate ol credit line, linked to imports of consumeri has served to rein force this theory. In reality, however, the Soviet Union has reduced real imports of Western capital and consumer goods and has reduced the growth of real borrowing since Gorbachev came to power. Soviet preference for an Indigenous solution to Moscow's problemi and longstanding concern over becoming vulnerable to Western economic and financial sanc-uona. In fact, argueuch more measured turn to the West.
Landing lo tha Sosirt Union? A
Untied loans aremall portion of the USSR's annual inflow ' of hard currency and do til*Ic cither to help underwrite prmimyku or finartcu Moscow's overseas empire. Moreover. Moscow ha* the wherewithal to find alternative sources of funds should this type of lending be restricted.
Articles
SettUag lb* Debate oa Reasonable Sufficiency "
UN ipeecfcecemberbe uiMbnotd that Sennet milreduceden udystems,atbal tba Reasonable sufficiency" debatebetas fettled on Ibe militaryincetbe ectKcr*easonableubject of Intense ihuumon among tbeprimarily became It haa come to bea codeo testify cutting back oa tbe leveltbe military receive! duringhDefense. The militaryany cutback ia military speeding withthatefined In term* ofthe West and that unilateral cut* arc Ulcivilians, meanwhile, were ttprotiing theview that tome force* lhat are In races*military rreruirxrnenu and budget* can
The ttmJrvg of iha rarepareuon forh FY DP dictated thai lb* political leadership make iha deci-aion on tho ipptoptevel of resource* for tha military Id late tummer or earty faQ. GospUnrequiresonths to prepare th*ed urget Iridic* ion for the nve-yenr plan and mustraft FYDP before It can proceed. Thus, Oosplan will require the draft from th* OenertI Stan* byad to meet that deadline It needed the gulde-IJnca In lernu of avallabla rtwourae levels In Ute wmmar or early fall8
The efforts to develop those guideline*atuiit* the miliary fcadenbtpSBPvKsrter* and those civilians who thoughtof resources to the military had to beUnder the aegb of ttainosi. thee*bad become increasingly vocal andia their view. The idea of uaiUtcraJa rote with theinstance,
unilateral cat* wore pcesibie,ing the Soviet Utah forceauvildate for inch cuts. Gorbachev was clearly tymrethotic to the view* the civilians eapresacd, and he, by bnpbeatioe, may bare encouraged tbetr tfcecbot and writings So setining case could be made for military cutbacks. The leadenbip ibakcup be engineered In8 undercut the more orthedoa wing of the party aadhim toh FYDP autdelmcs that probably reflect the carQUn view.
Perhaps tbe Ant convirscing evidence for what these gakdehoc* lookedrnvtaiacd iarffatesncot Marehal Akhrotocyev raadc at an8 nvtet-Ins of the Soviet Oerieral Stuff. Akruoroeyev was addressing hb tUff on what tnaat be done tothe decblons ofh Party Cco-Vre&ce Although he denned *ulhc*ericy ia the traditional mililary fashion, he went on to say the military
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"probably" will receive leas arms and equipment. It wu wot cleat from Akbioarscyev't comment whether "leu" meant leu than in iheP or leu than ihc miliiary had requeued. Nevertheless, his statement doe* Imply he knew what the guidelines ofih FYDP were by at ktast early August His use of "probably'- may have meant be saw some hope of reversing that decision but did not consider il likely. h
Tha Kwuije Zmrtda articlehat rerwnedeeiing makeshe importance of emphasizing quality over qusnliutive par*meters. Akrirorncycv aotcs ihatibe combat effeairencn and quality musi be higher il is possible for tho military to receive fewer resources. Tbe theme of quality was emphasised even more In an earlier Krasnaya 2tida article written by Muuster of Defeaseow} fag to Yatov, "The emphasis oa quantitative parametors isnot only increasingly costly, but less and less eHoctive in both miliiary pohtKal terms aad purely militaryets.chev. Chief of the Soviet Army and Navy Main Political Dtteesearaie. siseakiageeting of the Directorato Party Akliv in August, reported this emphasis on quality inthe satae terms It seems likely, therefore, that evenVm decision had not been made, lhc military saw the handwriting on the wall
The emphasis on quality applies not only to mHiL-ry hardware but also to "military science" and "compo rilion of the armedall for Increased qaallty of "miliiary science" meant Implements in military operations andng. Increased quality in "eonspo-sition" meant Improved training and discipline. These two goals arc tha military's problem: the national economy cannot provide such Improvements. Further-ntore, the economy cannot easily make significant qualitative Improvements In "militaryweapons Incorporating advanced technologies. The military leaoershlp realirc* that Improvements will come slowly In this area. Thus, major Improvements la quality will have to come from ibc ratiiaiy Itself Ihrough more efficient planning and use of manpower.
Another indication thai resources for the military were going lobe scarce inth FYDP and may eve* bo cut comes from tha industrial tide Lev
Ryabev, Minister of Medium Machine Building, in an open press interview admittedumber of military progiam* or* swing cur, sad funds preview. Jyfor their developrnent will be channeled toward more peacefultoward thedo-velopment of machine building for the dairy" Ilkesponsible for nuclear weapon* production
Meanwhile, civilian academic* continued to present vMw* on the reasonable suhVtcncy Issue that argued for rnajor speavding cuts. Perhaps the most outspoken of theiexct Arbatov, Chief of theSection of the Institute of World luxmomk* and International Retatloranhdunar-odAoyo ZAlrn' articlee seggestt that reasonable sufficiency in the strategic area could be dcGnedumber as lowoogaion nuclear warheads. He further notes that frompcrceei of the Soviei arsenal would be adequate to Impose unacceptable tense* on the enemy, implyingcurrent force levels give the Soviet Union "in meitdous reserveater la the article he adds that the Soviet Union iauch greater variety of models and modifies toot of weap-oary systems (than the United States bat] producing Ihcm in large batches and frequently replacing them with new models As evidence, be quote* tbe19i7 joist declaration on countinglistw* ail US strategic weapcos and IJ Soviet
While Arbatov is clearly implying Ihat present levels of strategic weapons are more than sufficient, it is run so dear what he thinks tbc eoootocnk beoctrts would be from cattittg those levels, lo the article he refers to "subttantiat resources'* that could be saved. However.BC radio Interview he argued lhal cats In defense would not be of tlgashcaoi help because the Scniet economy was so incrTicient it could not absorb ihc resourcesiable; "It would be like towing seeds on asphalt."
Arbatov bas not confined himself lo discussions of reasonable suffidency.*^
Other critics of Ihe Soviei military have followedead iathe icope of the ctilkism:EMO. Also, ihe military reportedly tried lo revoke the dear*noes of IUSAC Deputy Director Kokoshin (another civilian critic of the mPitary) and of Arbatov in an attempt to make it more difficult for them In research military subjects. The miliiary was overruled, however, and Arbatov and Kokoshin are free, for the tnomont at least, to continue to make their case for their definition of reasonable
Ministera conference sponsored by the Ministry of Foreign Affairs and attended byumber of otber academics, and governmentof ihe need to establish legislative oversight of the military and military -industrial authorities. The oversight would include the use of militaryrood, military construction plans, and the openness of miliiary budgets.
The decision on unilateral cuts will ilTectduringh FYDP. Although tbeof tanks and artillery already in the inventory will not cut futore procurement, expenditures forioos, maintenance personnel, and construction will be less. Otber decisions, not yet visible, may have been made that will lower future procurement cosu by altering the current pace and scope of ongoingprograms.
senior researcher at IMEMO, Alexander Salve-lyev, criticized the lack of new thinking ia the military. He complaiaed that, although the military bad accepted deterrence concepts long ago, Ihey were only now beginning to understand theof retaliatory forces on both sides, s
Several civilian writers have critidied thehandling of its discipline problems. Even the Politburo has become involved, reportedlythat military leaders take measures tomilitary discipline
We may be able to see such changes even beforcdhe plan goes into effect because the Soviets arc trying to avoid watting resources in the future For Instance, they might not begineapon in numbers or locations if ihat pbutrvd deployment was no longer part ofh FYDP. There arc some tenuous indications that this may have happened *f*
this period, the civilians seemed to bea winner's self-confidence in their discussion of tbe reasonable sufficiency issue. Moreover, they seemed comfortable in spreading their views to other mllltary-reuited issues.inimum, this suggests the dvillan academics were coming to believe the nolltlcal leadership was leaning toward their position.
The military leadership fought back andharp counterattack against Its critics. Oen. Yuriy Lebedev, of the General, Staffs Legal aod Treaties Department, criildrcd "sckntlsts of mlsed spedal-ties" who haveague Idea of the subject" in an obvious reference to the aeudemlcions at IUSAC
An sctoss-1he-board cut in military hardware IsIn an Interviewestern reporter inoviet Army Geo. Vitally Shabanov, after chiming his country's military budget began to"after the start of Ihe current five-year economic plan" went on to say that the miliiary had
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decided to spend more in the future on air deJeose. intdUicace gathering, aad vcrirJcatioa of US compliance with armi treaties. Allhough Shabanot. Deputy Minister of Defense for Aimaments. may only have been trying to itTect the debate with this statement, there are some hints of Its accuracy. For instance, tbe appearance thii summer ofur-faca-lo-au missiles (SAMs)ini be. of new-trooraiioa ICBM sfteshat the Soviets may have Incurred soma additional costs for air defense by doforring the retirement of older SAMs
Nevertheless, despite soma increases.ikely thai downward adjualinenU In Ihe aggiegate level offor defense are being road* by the political leadership If such adjustments arc occurring asesultecision on Ibe guideline) forh FYDP. in addition to Ibe already snnouncedcuts, we would cirasct to see evidence of major
changes ia the scope of Sewiet force rrederrilratjoei
tbe.
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Soviei Proposals lor Naval Anns Control: Mmltlntr Atlack Submarines
Chief cf the General Stan* icccntlr indicated thai Soviet atnu control policy probably will pay increased attention to seeking limit! on Ihe namber of general purpose submariner, including nuclear-poweredsubmarine* (SSNs) Marshal Sergei Akbro-meyev. in an articleot only endorsed the standard Soviet concept of geographic constraintslite ben* rin* warfare (ASW)butesire for regmiitscass onthe site of ASWspecially ibe number of general purpose submarine* Akluuciseyev staled
Wa also haveew al thai/ multipurpose nuclear and ditstl-po**red lubmarinesmlisile and larpedo arms. We are asking ihe Untied Slam lo Hon talks on ihe reduction of ihe sides'naval forces Thli reduction will also cover ihesef ours
Although Asthrcmeyev aid not elaborate on his unusual statement, past Soviet practice suggests thataying tbe groundwork for later proposals that will be more precise, it Is likely ihat much of the Soviet approach will be la the STARTfor hcrcasiag strategic stability through limits on the ASW threat to nuclear-powered ballistic missile submarines (SSBNs) Pro-posals for SSN limits, however, could also affeci other ongoing talks, eipedaliy those involving arms reductions in Europe, at wall as be panoviet bidew set of negctiaticni devoted entirely to naval Issues
There probably ts no tingle eanUnaiioa for the Soviet decii: jet to raise 'As ir most Soviet arms control proposals, an Interlocking series of motives probably is Involved. They range from propaganda value through jockeying foi position In negotiationsesire to accomplish cheaply through arms control miliiary goals ihat would otherwtte requite the allocation ef additional re-lou-eti to military PT*rni
Background
One of ihe themes in Soviei arm* control2 has been Ihat strategic liability would be increased if each tide had confidence that iu SSBN force wai not vulnerableadden attack at tbe outset of war. The Soviets have cftcn proposed to ensure this confidence through an agreement to establish rones in which each tide's SSBNs could operate free of ASW activity by the other side. The conclusion of agreement oacorsSdenee-fcuildiog measure- would esesh neatly with Soviet naval strategy's rrnpoaso on the SSBN bastion, whereby SSBNs arc deployed close to Sewiet territory and protected by defendingof general purpose aircraft, submarines, and surface combatants. All bough Ihey havereat strides in the development of the bastion concept, ihe SovieU remain concerned that West-ecu SSNs might enter these patrol areasrewar period of crisis, locate the SSBNs, and be in position to destroy them at the outset of war. The Soviets have long argued for an agreement that tbe West would refrain from such open tioos in bastion areas such as ibc Barents Sea and the Sea of Okhotsk. The Soviets in return would agreeonduct similar opcrattocs against Western SSBNs ia areas oa* lhc US coasts. Such proposals have been ignored ear redacted by tbc West because Ihc act effect of snch aa agreement wenddubstantial advantage to the Soviet Navy. Whereas tbe West has longredible threat to Soviet SSBNs. the Soviet threat to Western SSBNs oa petrol has been negligible, mainly because ibe Soviets lack open-ocean sensors capable of reliably locating the extremely quiet Western units.
Despite the lack of past success, the increased attention being paid to naval arms control under Gorbachev hai continuednclude support for
that the key problem Is Ihe Soviei superiority in ground forces. The Soviets, however, are continuing their efforts in turn the Western line of argument against itself. They contend lhat. If It is legitimate forWest to demand reduction! in the Soviet forces it regtrdi as superior and most threatening, tbey can demand reductions in what they regard as an area of Westernforces. The key naval target of ihis line of argument thus far has been Western carrier-based aviation, but general purpose submarines would probably bt drawn into theif tht West eventually accepted Ihe concept of discussing naval force reductions
The Soviets are abo likely to incorporate ihe attack submarine question at part of their efforts io open new negotiations devoted entirety or primarily to naval arms control. Several recent statements,those by Gorbachev, have called for International conferences oa naval arms control.
Will ll Sell Im Ike Walt
Western reaction to past Soviet naval arms control proposals hai been lukewarm at beet, but the SovieU probably believe thai Ibbhanging.under no illusions about Ibt preapecu for early agreement, ihey probably judge lhat, propaganda value aside, reoposalt 'at discasstous of lirtutaiioai of general purpose sebtrtarine forces may had aaudience. Among Ihe considerations the Soviets probably are factoring into their calculations are changes ia each side's rierccptida of SSBN stn-vrrabD-ity. ibe possible trade-off between naval and ground forces reductions, and the possible desire lo constrain naval spending
The Soviets probably believe that the tsirvivabtlity of theirmreoving. due primarily to the development of Ihe bastions lhc SovieU continue lo Inlrcdnce reAnemenu involving under-ice operalloars. Axed sensors, mine Kids, sad quitter uniu. they probably have concluded that ihe Wett
ASW-free tones' In addition tovarious proposals hy lower ranking rrf'tcult. Cot baches- himself ersdocsed the concent in hit Murmansk iperch in
Cnii In Seemarliie forcei
Recent Sovietuggest that. In developing Alhrooieyev'k concept of reductiont in general par-pose submarines, the Sovieu will use aigumonU slml* lar to those used in endorslag ASW-frtt rones. The. will stress the contribution such an agreement could make to strategic stability, particularlyost-START environment la whieb tbe namber of SSBNs had been reduced The Soviets will argue lhatin the numbers of attack submarines, as well at conitrainit oa their operating areas, will support strategic stability because sack submarines constitute tha greatest threat to each tide's SSBNt. In this regard, they probably will argue thai an SS?.would be similar to limits on numbers and delivery accuracy of ICBM warheads and on ABM systemseans of bolstering each tide'sin tbe swivabaity of lis trmtrgk forcei.
Proposals for limits oo attack submarines also will be reescated at another way of dealing with th- SLCM question, which has proved dlfltcalt to settle on Iho basis Of limiting the number of missiles Ot lunch tabes. Tha Soviets probably will argue that limiting or reducing the number of platforms should be another part af the possible solution The Soviets regard the attack sobttvnrinearticularly dangerous SLCM threat, in contrasthe surface ship, because of jit potential for covert approach to firing positions dose to Soviet territory. The bsue of gtmertl purpose submarine limitations Is therefore likely to be raised in tht corneal of Soviet accuutiotu lhat tbe Unitedrnmveniing INF through SLCM deploy-merits
Tht stuck submarineikely to be raised in the context of conventional nrms control in Europe That far. the West has been able lo keep ihe Issue cf reducing naval forces out of these divcussions. arguing
Smite Bargaining Chips: Th* Attack Submarine Fare*
Soviet Navy views nuclear-powered attackas the core of Its general purpose forces. In wartime most of them would be committed tonuclear-powered ballistic missile submarines ISSBNs) and attacking Western surface units,aircraft, Xtrrltrs and units equipped withcruise missilesthers would be committed to open-ocean operations against Western SSBNs and sea lines of communication.
The nuclear-powered attack submarine force consists of aboutuclear-powered torpedo-attack(SSNs, and SO nuclear-powered cruise missile submarinesivided between the Northern artd Pacific Fleets. Although three classes of SSN (Sierra. Akula. andand one class of SSGN (Oscar) are In series production, the force also contains many aging uniu coat: tided in theseehould the force be drawn Into serious arms control negotiations. Soviet alms probably will Involve various and sometimes conflicting objcottvei.
The Soviet Navy, If forced to sacrifice submarines, probably would try for numerical limitations that would give It the latitude to retire the oldest units while continuing to produce Ihe new classes. The Soviet leadership, however, might not endorse thU
approach. First, the Ministry of Foreign Affairs probably would view such an approach as hampering negotiations because of Western recognition of the minimal effect such reductions would have on Soviet naval capabilities. Second. If the poliiical Itadtr-ihlp's approach to the negotiations Is motivated In pari by economic coru'derailons, the Sovieu might be seeking constraints on the most modern unitseans of cost avoidance and consequent resource savings.
An additional complicating factor Is that ihe Soviets, unlike the United Slates, also maintain an equally large force of non-nuclear-powered submarines, tn*dudlngperational lorpedo-ottaek (SS) andruise missile (SSG) uniu. If constraints on them wereart of the negotiations. It Is likely Ihat the Soviet Navy would attempt to expand the role af these units to compensate In part for any limitations on nuclear-powered units. Although most of this Soviet force consists of older diael-electrlc units, recent technological developments haveIncreased the poteniial capabilities of newer nonnuctear units In terms of submerged endurance. Although they remain significantly inferior to nuclearIn sustained speed capability, advanceduniu potentially could replace SSNs tn duties such as under Ice operations and protection of SSBNs closeoviet territory.
judgeespitecontinued improvc-aents in the Western SSN force, it Is becoming more difficult to locate and destroy Soviet SSBNs. Conversely, the Soviets probably hope that the West is becoming less confident of iu ability to protect iu own SSBNs as the Soviets continue to produce more capable SSNs and experiment with nonconventkwnl ASW techniques.
Moscow also may hope that the West will eventually agree torice in naval reductions in return for Soviet reductions in ground forces in Europe or for continuing to exclude Western air forces from the
negotiations. Despiie their agreement to manditc language excluding naval forces from the 'Atlantic to Ihe Ur. !a" arms reduction ulb, the Soviets may eipeci that tensions within NATO will lead to an agreement to bare naval forces, including attacV submarines, introduced Into the negotiations.
Finally, the Sovicu may expectilHngness on the part of future US administrations to look more closely at naval arms controleans rif controlling defense spending. The apparent abandonment of the
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IrMl ofnivy toward tbc end of tbe Reagan idfTunlitfitioo probably wai viewed by tbe Soviet- as tn indicator thai even traditionally pro-navy clemenM tn tbe US Qetrernrnem were rethinking the quesiion of naval jpemlini.
Th* Moscow llurna- Rights Conference: Howoscow?
t Ma-cawemftftaetT Moscow hat noi been entirely cctaasteat In its effort* toighu conference, (saving alternated between period! of intense lobbying for itperiods of reUUve Inactivity. It Is curreoily proalng .ggres-slvley on both the honun rights confer*rice snd on beginning conventional arrni uika. Human righu Issue! are the lait major obstacle to an agreement at the meeting of the Conference on Security andtloc In Europe (CSCB) In Vienna and must be completed iticceaifutly before tbe proposed Cortven-tioaal Stability Talks can begin
Tactical coruidersttoni bare apparentlya-joe role In these cycles. After an initial push following the mrveillng of the proposal,exiatcrsns seemed to back off and,MUchapeeanepudasot Mcneow'. absorption In the INF 1st US-Soviet pcWksm. When INF *asa.amglcn ssunrnit pat cr. theoocluded the rigbi toig push on the Moscow coe^erence.esult, Sovwrt dirslcenats la Vienna and Washing-tononcerted effort to make headway on the era ef the summit
Similarly. Soviet officials probably now sense that, with tha Vienna talks windinglose, this is their beat aad last opportunity to get agreement for lhc Moscow conference, and Ihey hare resumed Intense pressureiatoi of several momhs. Sinceovietrom Shevardnadze down, have dramatically stepped up the pressure.iih ShovsidnsdSW
purged
the Moscow conic reel ce Idea,nde-o5 for Soviet agree-nent to two more human-dim en-ion conferenoe. called for by Ihe CSCB review doesiment to be held In Paris and Cocrthagea. Ia September. Shevmrdnadte further escalated pressure, th-eurcnirg to torpedo any Western sites for I
if the West cidudcd Moscow. This gambit was paralleled by Ihe Soviei representative in Vienna, Yuriy lUaalev,
AI this juncture there Is dearly an element of prestige at stake, aad Moscownuor-ue* it -in kec faceads to get agreement to the I
Domestic political considerations apparently bave alsoole. Through the hlaius during muchorbachev focused his allentloo on economic reform, possibly In the belief ihat hU release of political prisoners then under way might be creatirtg the preconditions for lator agrcoencnt on theInhen he was preoccupied with unrest ia the Caucasus and political chaUettgea from Ligacbev, the impetus also temporarily slackened Hm-ever. it again dramatically pkhed up asregained political rnorricnium
V^esusa talis over Uusr^mtaJmahsghpriorUyforboth! foreiga policy reasons. Ma to give Bp lU insistenceay be willing tom theonferenceene* suggest* that theonference on the subject efven on such topics a> Infi conucu. culture, orhat is, any uauallyit ancillary to tho core bumaa rightsecond Gonside ration It that the Moscow conference be treated on an equal fcoting with any other followup conference*.for In-.tar-.e, stressed to Ambassador ZtmmcrtaUB that all be man righu conferences shouldinal document, or none should.
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In (ho final tn*ly*is, Gcabachev wants Western mire meni tt> proceed wiih both Conventtability Talk*oscow human titbit conference Hia aciioai and statement! on theae issue* suggest be does noi believe he hai to give up one to gel lhcailer of tactical (legibility, he may now be willing to decouple the two issues Ia fact, Gorbachev advxser Vadim Zegladin recentlyestern newspaper thai the USSR no longer considered Wesiernlo the Moscow conference asprecondition for concluding the Vienna talks and beginning new con-vcMsoaal arms negotiations. If Soviet negotiators endoneompromise, however, they would certainly continue lo press the Westirm commitment to the Moscow meeting almost as toon as tha Vienna tea lion ends
Tkt Rtttottt Btkitii- CtHt/trtmttince Shevardnadze first un veiled his prcposal.has pat increased emcbaiis ee human rights inside tbeslept to implement freer emigration and more freedom of earxetiioai for those willing io work on behalf of Gorbaehev'i ptmiroyka. Two possible hypotheses notevaiiva help explain bow Soviet officials tee the relationship between the reforms and (he proposal for the Moscow
Soviei oflicitts decided lo implement the reforms in part to try to persuade Western countries lhai Moscowenaocratk and dviliied Western state, which, in tbe words cf British Prime Minister Thatcher, the West "could dealhe confer-ence, they hope would showcase these reforms
Some Soviet loaders, Including Gorbachev, may also hope touman rights conference in Moscow to press their reform agenda
. Rig ml RtltmnTt> Wtitern. The Soviets are clearly awara of theIn public diplomacy they would almost certainly garner byuman rights conference ia Moscow and ohibillag Gorbachev's reformslegal reform, and0 official CSCE ddesates. Furthermore, (ha Soviets have used the West's refusal to agree to the conference to charge inc West wiih perpetuaiingmyth* about Soviet human rights deficiencies
While the Soviets bave repeatedly denied that tlte conference proposal la intended to score propaganda points, ils tuning suggests it was clearly designed to make capital wiih Western public opinioa:
Gorbachev apparently concluded that Soviet human right* abuses couldajor impediment to hit foreign policy and arm* control inrtMlrret. Ath Party Congress ine explicitly rccognlred ihit by Including human rights at one of the ma Jen dements In his "new thinking."
Economic ofikiaU apparently also believedeneral improvement in the USSR's image mighl pave the way for greater scientific and ecoocmic cooperation that could assist la the USSR'* ravodersv
itatloa
Several pieces of evidence suggest lhai Moscow has cither implemented reforms to win Western approval or has trumpeted tbe reforms that were under way for its own reasons to try to persuade ihe West io agree to" tbe conference
Al the very beginning of the Vienna cocifereaee, iaoreign Minister Sbevardnadreore activist line on humanpromising thai Moscow would Issue new laws and administrative procedures in lb* USSR to aofv* eaisting humanitarianha* came at the same time he proposed ibe Moscow conference
laest German Chancellor Kohl announced that Gorbachev bad lead hns that al ofcosuadered to be pcertjcal prisoners by the Weal would be released. Gorbachev apparently promised Kohl that he would Hop Ihe jamming of Deuichc Welle and Radio Free Europe/Radio lib-arty, la the same prat* conference. Kohl aneoa raced Watt Germany's tentative agreement to attend the Moscow human righit conference
tVsi'ag Ike Coajtrtrntt Tt Keep -Orawcraifow Im" aa Troth. In addition. Sewiet leader* who favor greater libera lira lion uf human rights may be using the conference to push forward their own reform agenda.
Deputy
Foreign Minuter Adamishin has denied that Moscow wanu ihe conference for international propaganda. Adambhin argued lhat ibe human righti conference ii tied to the party congress that will be helde hai said that tbe leadership plans to hold the congress firs', and use Ibe conference to fightopposition to further liberalisation of human rights. While this Hoe it Obviously self-iervirie, there ht little doubt thai, by holding out for Ibe conference, thondirectly committing Itself toa higher standard for practice of human rigbti and. by opening Itself to considerable Westernforcing better compliance from the police and KGB.
Despite regime interest in the conference, certain Western demands are not being met, possibly out of concern they would further erode the regime's controlime of dramatically increased political activism,lready challenging the party's monopoly of power:
the regime Is considciing Ibe release ofmall part of theissidents still confined in prisons or asylumsroad range of charges.1
rovisions against anti-Soviet activity will apparently only be made more specific, not eliminated.
Muck Git fI There.'
Although Moscow dearlyonference toGorbaehev'i reforms, bow much furtherilling to go oo human rights to getnclear. The regime;
Ideally would like to showcase actions alreadyparticularly thoseuch as the release ofrisoners and the rehabilitation ofdissidents like Andrey Sakharov.
Has recentlyit by releasing several individuals whoarrow definition of "politicalThe justice minbter recently said there areucht has abo taken furthersteps like allowing Sakharov to travel to the United States, hoping to gel maximum mileage out of such gesiures-
Is abo potted toew criminal code that will, in part, address demands to institutionalise advances In human rights by eliminating or revising particularly objectionable articles, thus bringing ihe USSR into closer conformity wiih the CSCE Una! Act
While these moves arc part of Gorbachev's broader domestic and foreign policynotpegged to the Moscowmay be timed to affect the outcome of dbcusslons In Vienna
The recent Supreme Soviei endorsement of an anlidemonstration law also indicates the regime feels constrained to bolster iu control, despite both unprecedented oppositionandful ofand iu CSCE obligation, to grant freedom of association and speech.
rVongtwernmrarafanfcafnWy Tran blaome Ittut
Access for Western nongovernmental orsramrations (NGOs) such as Amnesty International and theHelsinki Federation, however, could remain tbe most diQKult hurdle The Sovieu havefluctuated on the key US demand that NGOs and unofficial Soviet human rights activists have free access to tbe meeting. Because the control of links between Soviet human rights activbu and theirsupporters has traditionally been of supreme Importance to the Soviet leadership, any greater flexibility on the NGO issue would seem to indicate an intense desire to hold the conference in Moscow.
' estimates af ournhen of prisoners rata* whWj. wab avast in ihe ISO-to-SOQ wife An aonuminiat the indndicated thita&Aaa mor probably Incaiwatofl In labor eampvr raychialnc aiykn Contradictory or OitrO UtorralWi rirvdvM ui tens
shmUaionMr.f
Ham Da Serin Dixsldents Vlen tht Cetfertnct.'
dusidtms ami refuseniks disagree aver wketh-tr Ika Weil shouldoscow conference rtndrty Sakharov ami tome otken believe thai hold-lag ll could ren.ll In benefits, provided Moscow fulfills tome precondition.
Almost since Ihe Sovieu first made their proposal, Sakharov has cortsittently expressed ihe view thai Ihe Weil should agree only If iht Soviet regime releases all remaining political prisoners and grants Ikem -socialhis apparently means not only their physical release bul assurance, thai they will not be stigmatised) cmdlftke USSR withdraw, totally from AfghanJitan.
' Inakharov exprested warlnest lo the US Antbassador In Moscow about Wesiern Insistence on "properthe Moscow conference and Western pressure for higher levels of emigration. He contended thai Iht best guarantee foe proper working eondiiionsoscowwas Moscow's desire lo avoid bad publicity In the West.
- West German Chancellor Kohl's onntsuneement In late8 lhat the SovieU had agreed ic release all those considered In Ike Wtstlobe political prisoners falls short of Sakharov', first preasudnion Thr physicist said that the mere onnttuncement did not Justify Western approval for
iheactions, notneeded. Furthermore. Sakharov has ImpUrd ke would not be satisfied wiih the release aflhe handful of political prisoners the Soviets claim exist: he has laid the US Embassy thai the II persons whom the Soviets claim are politicaltxcludts many whom he would consider as tuck
Mosi other Sovtet dissidents have shown concern about the Moscow conference. Inergey Grtgoryants. head of the Olasrust Frets Omb. lOdruattvr Si my Hoyer that he opposed
ence In Mtxtxow because If lion that remained unacceptable. He made this point while arguing that "democratization- had comeirtual standuill-*dth almost no releases from camps or psychiatricharper reaction gainst demonstrations, and Increasing pressure on unofficial organisations. Soviet refuseniks have sold In several meeting!8oscow conference would let Soviet auihorlllex mislead ihe West about the extent of human rights abuses In the USSR.
USSR* ecru lent, flp-riop* suggest aand lack of resolution amor* Sovtetofficiiwhal price to pay to win Western agreement io
Sovtet acBliopbreriia aboul abether Wen era groups and Sovtet aciiriru can have free aceeuoscow conference became evident immediately after She rardaadta made his proposal. Is Ownhen asked whether group* like Amnesty Iwcnsatioa-ai would be altered to panicipata, Kashlev said It would be subject to negotiation. However,o noi know Amnesty very welt,now
many groups that in reality have nothingo with human right* but wilh Inidlitrence services.^ .
13
-
I -
tht fillowever, there seemed to be locrie backtracking or uncertainty, perhlpt Hemming from the mote assertive behavior of Soviet human righu activists. The ihformal human righu seminarby ihe Glatnatt Pitta Clnb. only several week* before the Washington summit, made the question an immediate, rather than academic, concern:
he US CSCE delegation In7oviet official tc-Wi- " Jhat groupsIn tbe CSCB process" would be welcome, but not groups that were "provocative.'" He used tbe Glasnosi Press Club as an exampleroup In the second category.
That month, an aide to Kashleveminar organized by the Internalional 'Helsinki Federation that foreigners, creep* those who were onSoviet lookout list, would be welcome at the Moscow meeting
The Soviets were well aware of intense Western interest in tbe unofficial seminar;lenaryla Vienna, Ambassador Zimmermann expressed support for the coming Gttunoa Press Chb seminar as wellubsequent International Helsinkivisit to Moscow. Ambassador 7immerroannthat Soviet treatment of these meetings would be watched closely and wouldest of Mcscow'a acceptance of monitors as generallyin CSCE language.esult, Moscowdecided the foreign policy gains outweighed potential dcroestlc risks:
several weeks of vacillation and mixedon pa per on the Moscow human righu conference givenovember by Soviet Ambassadorto Assistant Secretary Rldgway tatd that the Sovieu had clarlfted the Issue of access io Moscow for NOOs, groups involved In protecting rights, and private individuals. The non pa per noted thatproposed lo open all plenary meetings of thehat never been done at any CSCE forum."
In8 ihe regime grudgingly gave wav on demands for participation by GrigoryanU and other former prisoners Inlandmark meeting between the Soviei Quari-omcial CSCE commission snd the International Helsinkifirst official NGO to visit Moscow.
oviei officials have not raised tbe NGO issue with anything like the frequency that was eridenl in8 session. Kashlev noted that, while he did not like "preliminaryhe pteex-denu in CSCE documents regarding Openness and access would be met. Despite this and Other generally positive signs, the covioos political sensitivity of allowing Western human rightsaad former Soviet dtizens. long castigated as ami-Soviet elements, to visit Moscow to scrutinize Soviet human righu performance suggesU this issue might crop upast-minute hurdle to tbe conference.
The LendenUp Angle
Wc do not have any direct repeating that indicates thai Use Moscow human righu conference haserious issue inside the Politburo- It is reasonable to assume, however, that the various leaders might very well disagree on this matter. Although even the conservatives in the leadership would agree thatshould get any benefiu from public opinion it can fromonference -Ligacbev has, in fact, publidy made thisare much quicker to sound the alarm over the dangers of foreignmost dearly represented by the presence of NOOs like Amnesty International, whose presence would stir up an already boiling pot
Tbe positions various leaders have taken on issues, such as human righuinoir,unrest, and "dernocratlraiioo" In general, permit us to assume that Gorbachev, Yakovlev.and, perhaps. Ideology secretaryfavor tbe Initiative touman righu conference In Moscow. They probably sec itay io demonstrate to the Soviet public, as well as to iheir more orthodox colleagues on the Politburo, tbe need
Glasmix Press Club conferenceallowed to convene with minimal regime interfere pee in December.
io continue io Institutionalize politicalil ic-forni.Institutional role ol Foreign Ministerwould makeatural proponent of the idea, aad be hai been ibe front awn la Soviei effort* toeemen: to the conference
On the other hand, Llgswhev. Cbebrikov. and Shcher-bitskiy are probably leading the forcei in the Potltbu-ro that question tha wisdom of opening the country to foreign monitors of human rights. Former KGB chief Cbebrikova senior party secretary formally talked with oveneelng adminlitrative organ- and legal reform mate hat made several hardline ipecehea ccsncernlag the need toaikan to ensure that reform; do not get out of hand, pretent opportunhlei to Westernservices to operate within the USSR, or ancjewr-age political instability. Such statements clearlyhe would be among those least enthusiasticoscow buenaa rights confere-ice that would grant Western human rightsccasion totheir contacts with Soviet political dissidents, many of whom have been In the forefront of growing catjoealist and pneailar freest rnejreanents. Similarly. Ligacbcv's eoodem nation inT of the "scum andhat washed up with the waves ofand renewal strongly suggests he would also be uncotbuitastic. Likewise, Ukrainian party boss Shebcr bitskiy has recently gone oo record with strong criticism of the abuses of reform by former dissidents. He has indicated intense concern about nations Im activity In his republic explicitly criticizing former Helsinki monitori who were freed In Gcrbachev'i initial wave of released political prisonershese leaders views appear to be shared by many local party official* and Central Committee members, as indicated by ihe strong support for recent curbs on public darnonstratloni and periodic tough crackdowns on ac.tr> his In several republics.
Despnc Utile direct trridence, Shchcrblukiy's concerns may be shared by the other two regional party leaders on iha Politburo, Motcow chief Zaykov aadFirst Secretaryandidate member Concernrowing spiral of detronstratictnt has led them toougher line with activists,In Leningrad. Moreover, their dtles wouldbe focal points of attention during any conference.
undoubtedly causing litem untoldeveral reports *nd their public statcmenu suggest thai both men are concerned about ihe burgeoning informal group* and icursutls, aad Zaykov ha* exprasiedout bow reform hai contributed to rationalist activ-bm.
A large middle ground of Politburo official* may cad up being Influential in the decision on bow far to pushuman rights conference This group includes Premier Ryrhkov. party secretaries SIyun*kov and Nikonov. and governmeni officials iueh al Goaplin chief Maslyukov, deputy premier Biryukova, aadad are focused primarily on economic issues. White they probably lack the expertise or deep commitment lo the Issue, they may be tempted to accede to Gorbachev'" inter est in the conferenceay of improving the climate for East-West trade, which does rdate directly to their formal rr-.i.
These cruasculting equities make Moscow'sire difficultredict, but it appears thathev's recent leadershipand hisio ibe pecildeocy give him greater room for maneuver, which may hdp explain Ibe latestain. Western acceptance for the conference.
The9 Economic Plan: Can Gorbachev Keep His Promises to the Consumer?
lan, announced at an October meeting of (he Supreme Soviet, lubitaniially elevates the priority or consumer welfare but, in our judgment, doe* not supply sufficient resources to back up the planned production of goods and services. Priorities within machine building and investment are being refocused to concent rale resources on key technologies and consumer welfare programs. Moscow's promises are largely predicated on unrealistic targets for economic growth and resource savings. Moreover, Moscow's approach could make mattersspending for consumer welfare Is contributing to substantial growth in the slate budget deficit, and managers are expected to meet ambitious production targets while accommodating numerous, probablychanges In the economic system. Shortages of consume, goods and inflation may well increase, potentially fueling popular unrest.
Grvwlma Ctwere*8 Soviei officials and analysts have expressed growing dissatisfaction with tbe performance of the economy.8 tbe Soviei economy will rebound from the extremely poor showingul growth wQI fall far short of btrgcts set8 Inhlan (seeemands to Increase output, while retooling and implementing newand managerial measures, arc probably taking an increasing toll oa performance in many Industries. Wc estimate total Industrial output will grow byercentilh even slower growth In chemicals and metals production. Agricultural output Is likely to grow by lessercent, as declines In crop production are balanced by gains in production cf meat, milk, and eggs
1
USSR: Kcorsoenk
ptrtM<
GST
Agriculture "
Soviet targets are spreading resources too thinly and thus diluting their Impact on economic performance. Plans to increase spending In such areas as science, consumer services, and hospltabi areon target but state revenues have grown much slower. Consequently, Soviet officials have to contendarge and growing budget deficit and rising inflationary pressures. Likewise, urrestrnent growth will beercentut this spending is not being assimilated effectively. The rate of housing completions has fallen, aad growth in commissioning* of new plant and equipment through ihe first cine months8 is lessercent
IS
lac* oT Improvement in consumer welfare hu drawn particular celticism. For yean, ouipul ofgoods hai irowaaa consumerad Ibc Soviets have favored heavy indvttry with invest mem resources.5 lbs Soviets have relied on stricter quality control aad management reforms in light industry and retail trade to improve consumer satisfaction, but these have failed tosignificant results. Although some gains have been made In housing and consumer services, overall par capita consumption has stagnated, aad ma dec. cite food supplies havetomost pressing concern oa Moscow's *gea-da.
Moreover. Gorbachev's reforms have in some wsys worsened theage reformapid Increase in nominal wage* that has exceeded growth la the supply of goods and services (see figureany enterprises bave used iheir new freedom to plan output by dropping or reducing petdocoou of unprofitable, usually low-pricedgoods Wholesale trade refcetni have started to disrupt estabtitbed channels of distribution. For aB of these reasons, according to Soviet officis.li and press accounts, short ages have intensified, and inflation in the maritets for consumer goods and services is on the rise.
*
t Flam: SUfllmthe Ctmumer9 tirgata for industrial production have been lowered somewhat from the original goals of the five-yearvert he less, targets for Industry and the rest of the economy remain ambitious, especially8 performance (see tablet Investment growth ts planaed to slow, consistenttbe original trve-yeur plan. Adverse condition! la latrruaikmal markets, primarily weak energyave forced Soviei plannen to scale back nominal targets for foreign trade from8 plan goalsercent-Gosplan chief Mailyukov Indicated after the Supreme Soviet meeting thai the volume of trada will Increase, but he did not provide de tails on tha structure of Imports aid exports
riorioviet pit oners have ekarly departed from theh Five-Year Plan by setting ieross-ibe-board Ins cases hi production targets for consumer goodi and services. Production of consumer
Figure 2
money immcs 1
USSR: Change In Disposable Income and Volume of Retail Sales
Inarm-ni to
reltll trie* vetutnr *
ottuH
3
17 Bt
al Sovkl Uk
dn* in eurreni ruble* seiTised
admited reufl price indu.
goods ia slated to growercent rather than the original urgetercent. Retail tales of consumer goods arc loercent over the plan urget, andercent. Spendui* on bousiag. education, the enrironment. peuqreu. and en her socialwill tho be Increased. Toonger terra goals fee food and nonfood consume- goods, large Increases in investment in fond rvrootiting and light Induitry are planned
USSK:9 Kcortomk Coal*
in of
PUnOnr
Plan'
rVferm-.iise*
un totl>oa rfOHof oil pit
' Si ml cn CIA tstimatno' prooiKiioi In [Ml.
Chftime'eiue
Almost all sectors of tbe economy'are to contribute to these efforts to raise consumption:
The defense-industrial ministries have been tasked wiih major increases io the production of such prestigious consumer doubles as color TVs,nd PCs. and are to increase production offor food processing and light industry byoercent.
Deliveries of timber and other construction matrri-els lo retail sales are planned to increase by IS percent over8 plan tn order to support private housing construction and remodeling,Id rural regions.
The transport sectors are being asked to increase tbe volume of passenger transporterceni for air travelercent for train travel over8 targets. Freight shipments arc to Increaseercent.
Even tho hard-pressed energy sector is being told to increase deliveries of fuel over tbe five-year target for consumer and municipal use.
By contrast, overall production of producers* goods it slated to growercent over Ihe planned levelather titan tbe original targeterceni. Oulpul In the machine-building complex is to grow al
6 perceni,erceni for high-technology sectors, and improvements in machinery qualityio be stressed. While modernization goabambitious. Ihe Soviets are now emphasizing key areas rather than pursuing across-the-board growth. According lo Maslyukov. the basis of the plan for machine building isriority areas for technological development, of which at leastrc intended to modern!Le consumer industries. More generally,of equipmeni for consumer-reinted and high-technologytaled for large Increases.
9 plan calls for slow growth of most industrial materials, with the focus on improving ibeof output in metallurgical, chemical, timber, and construction materials industries. Output of oil, gas. ando grow by roughly 3upward revision from original targets, reflecting theof tbe leadership to slow growth in energy conservation and continued reliance on energyfor export earnings. Likewise, planned output of rolled ferrous metals has been increasedebovetargets9 but stillelatively slow rate of growth.
Finding lie Rtsoarcei
Moscow is counting on more efficient use of resource* to meet most of9 plan targets. Given the failure of tbe economy to meet9 targets are probably unrealistic. According to9 plan, resource savings are to accountercent of the increased demand for metals and timber products andercent for energy products. Soviet officiib have been harshly critical of ihe waste of investment resources, especially in the as.rolndustr.al complex, and9 plan appears to be counting on the reduction of unfinishedto comnensateore stringent investment policy.
RtfcM-nu. Soviei pUnners are counting on continued gains in efficiency from the further Implementation of economic reformsD of Industry andwill make the transition to self-financing by the first of the year, and wholesale trade reform will
continue to expand. Stuie urdcra etc to be reduced by it leaitercent in induttry. although certain "unprofitable- uinwnremainto state orders tothat ihey will be produced. Neither wholesale nor retail price reform is scheduled for imptemaruatkoai inll is likely that retail price reform has been postponeda reform economists ara aow eiprcmng skepticism about ill wisdom
The Soviet leadership is pushingor the expansion of Ihe private and cooperative sectors aad long-term leasing arrangements la both agriculture and industry because Ihese initiatives hold the best prospects for producing short-term Improvements In the quality of life:
the debate on9 plan, officials of the agromdustrial complex were chtidtcd for failing to take full account of the potoniiil of cooperatives and leasing for expanding output In ike formulation cf the plan for the com plea.
v+'lir^ *trlaVO IO CXXapt! ratlivCat Of Wf alf*
laageiBeaU is routinely mentionedolution to unp.ofiUb.lt ty
Meanwhile, Soviet leaden continue toigh hopestersectoral Scientific and Technicalto overcome barrieri to technologicaland to speed up modes nl ration
aslyikov, In his report on9 plan, indicated thai ret Mice* are lo be diverted from uraprxifled producers and cuiporu to meet consumer welfare goals. Given the thrust of9 plan, it is fair to assume that heavy Industry will bear the brunt of any transfer of rosoercea. Noapriority machrtve-building lectors ara tha moat likely targets forin resource allocations Accordingeputy chairman ofrvdastrial enterprises rre to be fatly or partiaDvto prorhsctio* of goods for the consumer
Well-endowed Soviet defense industries have been directed to reequlp food-processing and consumer goods enterprises, and they Indeed have inherited many plantsisbanded ministry thai was charged with manufaciueing eouipment for iheof consumer goods and food, The Minister of Medium Machine Building, the mosi secretive of ihe defense ministries, indicatedecent interviewumber of military programs arc being cut and lhat iwo enterprises designed for the production of military hardware will be converted to civil production.In his recent UN speech, also emphasized the need to convert some weapons production capacity to civil uses. Bul, ai least through this tive-year plan, defense industry participation is likely to remain limited, becauserobably reluctant io disrupt major weapon development and production programs thai are key to force modcroiration.
Investment resources are being redirected to sustain improvement in consumer welfare into. Invcstment for housing nnd other social purposes is toercent, while productive investment in industry and other sectors will remain al "roughlyroductive investment, ineing tiiifted to Ibe narrower priorities for developingbuilding and to meeting consumer welfare targets
Fonigalanned drop in turnover9 from8 plan levels, foreign trade is not likely to play muchote in increasing ibe availability of capital equipment, industrial inputs, and consume! gocds. Soviei export earnings will be hurt by soft energy prices and the chronic uncornpeti-tiveness of Soviet manufactured goods an worldConcern expressed during the Supreme Soviet debate over the draft plan led Moscow to reduce export plans for tractors, other agriculturaland, perhaps, even some fuel so as to increase availability to Soviet agriculture.
Imports are to be channeled prefetniially togoods industries, but with no increase inImports; this requirement implies that otber sectors win experience decreases. Imporu from Communist countries are to help support an increase ofercent In equipment to be applied to retooling of light
,Seer*t -
ecently it mod line* of credit with Inly. West Germany, ami Ihe Unliad Kingdom Totol light induitry and food-processing equipment suggest lhal In ere ued Import* of Ihete items could begin at earlylthough mosi such Imports will occur In. Moscow's reluctance io Increase its hard cunency debt, fueled by doubt* about its ability to Increase hard currency capons, suggests that it will draw down these credit* slowly.
Proiprm
The Soviets are unlikely to come close to meeting their ambitious output targets, especially forgoods. Leadership adherence to tbe high-growth targets ofh Five-Year Plan allows h'ltle slack for enterprise managers to adjust to reforms and to restruciure production to meet the higher priority attached to consumer welfare. Moreover, whilebalanced on paper, tbe plan relies heavily on large gains in efficiency and resource savings, going beyond the traditional tautness of Soviet plans.esult, the plan does not appear to provide adequateto meet even priority targets. Several of the speakers at the October Supreme Soviet sessionthat9 plan was not backed up with the needed materialhe Inability of Soviet planners to develop an achievable plan will increase the gap between incomes snd available commodities, adding to inflationary pressures (see Inset, "Coping With IrulalkwT').
Moreover, the changeover lo the new economic ervech-BDrsro, if fully enforced, create* the potential for serious disruptions to economic performancenterprises are being asked to finance iheir own expenses. Including investment, out of profits and to negotiate directly with suppliers and customers, which might Interrupt traditional supply relationships. Moreover, planning authorities and ministries have less control over enterprise activity If things start to go awry. Output largets passed down from Oosptan are non bind ing, except for output covered onuer state orders (see Inset, "Declining Authority of Central
Coping Wiih Inflation
The wage Inflation retailing from greater emerprlse control over labor payments and from the wage reform seems to have taken Moscow by surprise. Plans for dealing with It art sketchy andCentral bank authorities are to monitor Increases In wages to insure that Increases In productivity exceed wage Increases. Tht Soviets may also be attempting to slow Ihe pace of the Implementation af tht wage reform; so far no targets for9 have been announced. Moscow, however, may have little choke but to proceed so as to prevent unwanted labor movements Into those enterprises thai have already adopted the higher wage scales of tht reform. Moreover, until Moscow comes lo grips with other factors contributing to Inflationaryadministrative efforts to control wage Increases are not likely to have much Impact on general Inflation in the economy.
In particular. Moscow's Inability toalanced plan will add further to Inflationary trendsome expansion of consumer programs Isharp Increase In government spending that officials must recognize Is not backed with the necessary goods and servlcet. Finance Minister Gos-tev reported In his speech on9 budget that expenditures would rise5illion rubles) and revenuesillioneadingeficit ofillion rubles. By contrast, ve estimate that the deficit equaling aboutillion rubles8 willillion rubleseasures to address theIncreasing enterprise profits and reducingon management In government andart almost certain lo be inadequate. Indeed, Maslyu-kov assent.on't think that the growth ofwill slow down or comeertain period of time will no doubt elsose beforeo cope with this problem.'
Same btpt fot I'ew mmplthu ties Is ilw iridiilj-ol Sdtilmi ihai ceaeratl) son on bahladthr tccaesaiduafarnlllirny wit*forma of etannlni tut (Uartbailaa
L9
Detuning Authority of Central Plannets
i ability to control the direction of the txoaomy has waned as the economy has grown more complex. Getrbachev's economic reforms and overly ambitious five-year-plan targets have Intensified this trend. The discussions lead-ng to the adoption of the im plan were marked by Intense dissatisfaction over the lack of progress In directing resources to meet priority targets, especially for light Industry and the agrolndustrtal complex. At one pointouncil of Ministers'meeting Inpeaker who was explaining Ihe reasons for price Increases by saying "How could Ihis happen? Isn't there any control at all In ourrustrated by the negative consequences of economic reform that developed this year. Moscow has implemented several admliislrattvt measures thai clearly contradict ihe spirit of the reform efforts.
The leadership's frusiraiton It Uktly to grow9 as reforms ore expanded. Ministries have beenforbidden lo add to GosplanAssued slate orders or to force enterprises to sign contracts. The head of ihe Slate Committee for Material and Technical Supply slated at ihe September meeting of theof Ministers that some enterprises and ministries were actually planning lower output levels
"f
In addition, ihe role of central planners ts also being challengedore active Supreme Soviei. Gosplan Chairman Moslyukov claimedpasimade by ihe Supreme Soviet's reviewing commissions had resultedumber of importani changes tn ihe draft plan. Including:
An Increaseillion rubles Inet for sales of consumer goods.
An Increaseillion rubles In capital Invett-ment In the agrolndustrial sector tat ihe cost of Imestmenl cult In other unspecified sectors).
An Increasequare meters In the targei for housing construction.
The Suprtmt Soviet also Is beginning io openly discuss previously taboo subjects, ll has lalktd about Ihe budget deficit for the first time, and ihere have even been calls for an open examination of ihe defense budget. Probably the mosi slanting development ai the late October session of the Supreme Soviei, however, was the announcement of the recorded votesumber af Issues, which for ihe first time In recent history were less than unanimous.
More enterprise autonomy hiriiky more because key economic Inrotmeiion. ear, cielly prices, has n* yet been adjusted io ensure that andecisionmaking is consistent with state goals.or example, many enterprise managers underhave focused on production of higher priced goods and have allowed wage increases to outpace increasesoductlvtiy.
While the leadership has not backed off from the high-growth strategy set inh Five-Year Plan and no doubt hopes for the heal. It may be bracing Itselfockyeading reform economist boa recently commenied that the five-year plan is
incompatible with tbe switchhe new economic mechanism In an article on the drafteputy chairman of Occplan stressed the Importance of email-ty over quantity end seemed lo Imply thatof output targets wascted. finally. Maslyukov in his address to Ihr; Supreme Soviet oaly "hopes" that proposed energy targets can be met and admitted that the plan will not eliminate shortages of consumer goodi. Another olhcial went even further, sayingpeech to the Supreme Soviet that the acceleration of rsroduciion of consumer goods will have "virtually no effect" on pent-op demand.
Seciel
Al ihe same time, insistence on punning unrealistic
increases the prmpecu Tordisrup-
tioni. In coo ir sir to previous flve-year-plen periods, tha leadership generally bas not used the annual plans lo account and to adjust for the economy's failure to meet ill targets in previous years9 plan, therefore, may serve only to eiacerbatc tbc dnpropor-liosts accumulated to dale since Gorbachev'sla addition. pUnaers are attempting tochanges ia the economic mechanism, including ihe planning process, which, at beat,efined notions *ben the plan svas being drafted. Should the leaders hie manage to maneuver the economy through ihis transitional period without resorting tomeasures to overcome every obitadc. then Mcsscow* chances for Improving the performance of tho eeonorny in the long run will be Improved.
Dependence on Imports From (be Weil: Why the Numbers Belie the Rhetoric
Moscow's much publicized concern over the need to rapidly modernize tho economy and, more recently, to address consumer discontent bos led many Wesiern observers to assume that Gorbachev will have to turn to the West for major economic, and financial assis-Unce. The recent spate of credit lines linked to imports of consumer goods has served to reinforce ihis theory. In reality, however, the Soviet Union has reduced real imports of Western capiul and consu mer goods and has reduced the growth of real borrowing since Gorbachev came to power. Soviet preference for an Indigenous solution to Moscow's problems and longstanding concern over becoming vulnerable to Western economic and financial sanctions, in fact, argueuch more measured turn to Ihe West.
nd Reality There has been much discussion both inside and outside ibe Soviei Union regarding Moscow's need for subsuntial imporu of Western equipment,tnd consumer products. Debates Initially focused ootbe role of Wesiern technology and eouipment in Gorbachev's economic modernization program. They haveroadened to include thosegoods and services necessary to legitlmire Gorbachev'shb program ofrank-and-file Soviets.
In Western drdes, such discussions areritical element In the larger debate ever the ar^ropri-atertess of "helping" Gorbachev solve hb domestic economic problems- Although there may be wide disagreement over whal Ihe West should or should not do In thb regard, there seems toonsensus within political and media circles that Moscow will rely heavily on tbe West and lhat lhc Alliance should lake stepsnsure that It does not inadvertently provide Moscow with substantial economic and militaryby competing for Soviet business,
Gorbachev and his economic brain trust have not discouraged Wesiern perceptionsoviei need for massive inflows of Western equipment, technology, and consumer prcducu. llconomic imperative* aside, it serves Moscow'* broader national securitylo have Western governments "Sealed"ositive outcome of the regime's economic andreform efforts. Discussions of major joint-venture arrangemenU with Wesiern firm* conuin elements of such vesting. Thb lactic seems most evident, however, in Moscow's recent successes in landing the official blessings of West European governments for tbe extension of large credit lines to underwrite Soviet purchases of equipment in support of domestic efforts to improve consumer welfare.
Western expectations of increased Sovtet eeonomie depeoderice, however, contrast sharply wilh actual Soviet behavior trade and finandal dau demonstrate that, if anything, Moscow bai become more autarchic under Gorbachev:
Once one discount* for exchange rate movements, net indebtedness has risen by onlyercentS; net real borrowing actually fdlS billion last year.
Soviet imporu of Western capital goods have fallen In real terms since Gorbachev came to rower, although attention has recently been given to esub-Ibhing credit lines to underwrite future imports.
I here are no signsubstantial upswing in actual orders.9 Soviet Economic Plan, for iu part, callslight fall in toul Soviet imports,
readership cut back substantially oo Imports of consumer goods in response to falling exportand imports have yet to return to
levers despite Ilw increased salient) of Improved consumer welfare lo the succesi of prmiroyka. Austrian companies, for example, complain thai sites of shoes aod clothes to the Sovietmore lhan SlOO millioo inalrnrtsi evifcriled
;Serin -Pestoscow's reluctance to turn to ihe Weil forhelp is belter understood when one consider! the nature of economic problems facing the Sovietand the broader implication! of economicfor Soviet national secuntr objectives.
The leadership has undouixcdljttmber of sharp lessons from Brcxrsnev's eiperiertoe ia the:
The emphasis on Western technologyeans of stimulating and leadingciodcrnion did nor, lire up to Its advance billing. White certainfiled from Western laststiBce, the overall recordattern of equipment and technology purchases that were inappropriate to begin with, never properly Installed, or. even in tbe besi of circumstances, utilized effectively.
Expanded trade with the Wai paid poliiicalby tngetv* jring pot-otially divisive comon within the Alliance for Soviet buaioeao, both in terms of heavily subsidized credits and pressures to relax guides! aes of the Coordiniung Committee for Multilateral Eiport Controls (COCOMV At tbe same lime, the lubseouent application of economic sanctions to modify Soviet domestic ind foreign policy lahlaiIves made the coat of economicabundantly clear to Brethnev and his lacces-tors.
Tbe leadership bai paid dose attention to ihe ecctnom-te and poliiical problems faced by those Bancountries that were unable to make good on the gamble of using Western equipment and technology to jack up economic performanceigher plane:
While lome improvements occurred, the Eastexperience demonstrated that lhc tought-after tech no logical snd economic gains simply could not be achieved within an ecooomk environmentby central plans and administrativedec.iioci making.
The pi toe for this failure economic austerity at homeroiwursced dependency on Ihe good will ef Westernstill being paid. In some cases, It Is at tbe heart of political dissatisfaction within Eastoni Europe.
Soviet concern with avoiding similarm la capturedecent interview byister of
I. it hi Induitry. who slated that Moscow had"categorically" against instant gratification That path has no future Innd the Soviei Union will never be able lo get out or (such a] dependence on buying.*
am-ear Rnllila
Gorbachevs economic advisers also recognize the potential galni from increased use of Westernand equipment, bul they lack the confidence la the ability of thecurrently euofiguredto effectively absorb and ultimately diffusa imported technologyarge scale. They are tpcrifccaUy sensitive to the irscorurruence between current admin-istraiive rules aad incentives governing enterprise performance and the competitive economic(price flexibility, decentralized dtciiion making, eotrroeiitlon for sales) needed if the USSR Is to draw effectively on Western technology and equipment:
lack the ability io bid for dcoseatic resources or otherwise elicit timely domestic machine-builder response to their particular requirementsesult, enterprisesistinct bin towardieh can be Uilorcd lospecific*tions and deliveredimeiyeven when the same or similar equipment Isdcosesiicalty.
Soviet CeruervalLvrn Is Soon
The Decision To-
Imports-
Oimneyol
GooOc7
ne not held fully accountable (or lhc erTec-livenes! ol iheir importn the absence of an incentive ttruciure lo reward proper choice* and effective absorption or. conversely, to penalize those who pay little attention to whal is purchased and bow and when il is installed, there ia little guarantee thai scarce foreign ci change will be well *pent.
Thin bvatrtw Debt
Steps have been taken lo Facilitate direct contacts between Soviet enterprises and Western equipment suppliers and to properly reward effectiveAt present, however, Soviet enterpriseare faced with lhc worst of all worlds; the old rules governing the selection and purchase ofequipment have been remanded for manyand ministries, but Moscow has yet to fully develop the sets of procedures to take their place. This confusion, combined wilh the isneertaintiea regarding the implications of imported equipment for self-fioancirtg, product pricing, and the generation of hard currency eiport earnings, may well have resulted in an aggregate decline in enterprise demand forequipment. While some of this decline is entirely appropriate for the reasons cited, enterprise confusion has probably resultedubopiimal level ofImports over the near term
Import demand Is abo constrained by Sovietouservauam. Thb leadership, like those beforeensitive to the national security implications offinanciallyumber ofSovieU have been particuUrly explicit oo the need to avoid any semblance of dependence oo Western financial markets to meet domestic economicAny SovieU who doubt the rationale behind thb line of argument need took only at the experience of Eaitcrn Europe, tbe past imposition of economic unctions, and the persistence of those who seek to monitor and condition credit Rows.ow level ofubstantial "strategic reserve" of gold,igh level of liquid asset holdings in Westernarguesapid rise in borrowing unless the ability to repay thbully guaranteed
In Itui regard, ihe situation facing Moscow4 ia far ditTcacat from Ihe USSR's podtioo in lhcOs. arhen theowed iheir debt lo lhc WcUncrease substantially:
Brezhnevs economic advisers were confident of ihe Soviei abiliiyignificantly hieher level of debt with higher priced oil and olhern contrail. Moscow must contend wllh stable or decfatwrtg oil prices andover the Quantity of oil lhat will be avaibbte for expert. The leadership Is painfully aware, moreover, lhat rrubsiaatUl bard currency sales ofgood* are not In Ihe cards for the near future.
Much of the debt runup Inas formally tied lo Western ag.ee minis to purchase Soviet raw materials, notably Siberian natural gas. coal, sad wood products, la allhc now of hardcarniags far exceeded project-associated hard currency expenditures. guarantccKg ihe Soviets an increase la hard currency import -apaclty. Although similar deals cannot be ruled oui in, there are few iradiations thai this option is being heavily pnsdsnd
On the otber side or the ledger, Western capital markets arc far more developed and the Soviets more sophisticated tn upping them. Initiative* such as bond issues allow Moscow to expand lis borrowing before running up against portfolio constraints and otherwise reducing access to additional funds and/or raising the cost of future borrowing Soviet pragmatbts would contend, however, that current modi lions only serve to alio* Moscow to get Into bigger trouble faster.
urreml Ititiatiti
Soviet emphasis on concluding jcint ventures with
Western firms reflects these concerns and limitations.
The deals, by forcing long-term Western involvement
in enterprise deehiceimakirtg and productive
etnoerscy:
Improve the likelihood for effective Sovietof Western equipment and know-how.
Increase ihe chances for increased export* ofgoods to the developed West.
Minimize the drain on scarce hard currency by virtue of Western capital participationepatriate profits in the form of products.
The soliency of joint ventures to lhc leadership'* economic agenda I* teen in the regime's willingness to bend or change ihe rules in order lo allraci Western investors to priority projects. Alternatively, Moscow's inafaillly lo allay Wesiern concerns about the joint venture's access to raw materials and intermediatebe hiring and firing of employees, aad tbe repatriation of prod IS in bard Curreocy highlight tbe economic barriers to econornywide nvadersurationforeign investment.
Soviei interest in International organiaisoas *uch as meeting* nf ibe General Agreement oa Tariff* and Trade (GATT) and the International Monetary Fund (IMF) hai strong political overtones in signalingintentions toull member of the international econosrsic andommunity From aa economic perspective, link* la thoseations would improve foreign trade aad Baancing rJeebscattru^rsag and otherwise proa id* lb* fraaarvaarh for espawded eiport* of ma mi factored goods over the long term
Moscow ii probably most interested iaarty to GATT rules and negotiations. Moscow's cooperation agreement witheabo retire ts the desire toelter understanding of potential export opportunities.
Oscvsiion* wiih the IMF aad Ibe World Bank era far more capsoratory bt nature. More ihaa likely, tbenterested inetailed ipprcciatky* of the cosa and benefits of member -ship belort making any formal approacheso financial need to link up with tbe IMF it thb time
Bound joint venturesew interest Intrade and financialowever. Moscow's turnbe West is more ihow than go. By
indications, ;hcre is no leadership consensusajor turn lo Ihe Wesl ai this lime. Emphasis continues to be placed on domestic solutions in the belief that substantial increases in ihe quality and quantity cf civilianproducerand consumerevolve from the implementation of ongoing programs to:
Draw on the exrxrtise and productive base of the defense sector.
Reduce the barriers to the effective developrnent and application of Sovki-designed produciion and process technologies.
Decentralize enterprise decuionmaking andallow for increased enterprise control over Ihe quality and quantity of inputs it receives.
Aller Ihe structure of incentiveselter reward efficient enterprises and productive employees.
Increase the supply of consumer goods and services by allowing for greater privatisation of economic activity.
lu own reservations regarding the utility of relying more on imports notwithsunding. Moscow has not belittled ihe belief among Western governments that Western support for ptreslroyko canrofitable business.ove somewhat rerniniscent of ihe, Sovkt Mgotiatort areumber of major credit agreements with Western bankexplicitly blessed by West Europeanto underwrite future Soviet purchases oftechnology and equipmeni for the USSR consumer goods sector. See the following tabulation on credit lines extended to the USSR:
While Moscow could well be lining up credit lines now to permit more flexibility in resource allocation decisions pertinent toh Five Yeark Ihc spate of nctiv,iy. site of tbend Iheir explieii and highly publicized link io improvingwelfare indicate the presenceolitical agenda as well;
There is no indication Ihat Moscow is prepared to move quickly to place equipment orders against these credit lines,
Unlike the credit tines of the, when credit competition among Western governments led to substantial interest rate subsidies, the recently conduded lines do ism offer preferential financing (outside of Ihe slight interest rate savings fronvtho presence of government political and economic risk guarantees) or otherwise materially broaden tbe potential base for Soviet borrowing.
af
The Soviet initiative comesime of consideration by the US Congressional and executive branches of the propriety ef restricting or monitoring credit flows to the USSR. Within this context.lining op large credit lines backed by Western politicalhave sought toarch oo any attempt by the United States to develop an Alliance-wide consensus on ihe credit bsue. More broadly. Moscow undoubtedly sought to use the credit issue to promote official Western support to Gorbachev'sof economic and social rcritalixatiou to the betterment of its larger foretgo policy and national security objectives.
the Rema" Not Take*
Gorbachev may be forced ultimately to turn lo the West for hdp tn transposing the Soviet economy and may buy time in the interim with substantial mftews Of consumer goods.ecision would qukkly become evident to Western analysts by .Line of the media attention to ihe signing of specific contracts and live like. This option, however, holds dangers ihai
Gorbachev's prcdeceuoei did noi have loak-ini tho choice much "larder ihii time around. In many way* Il wouldlear ilcn of leadership desperation:
Unlike ibe titaeiioo in, there ii no guarantee ihat Moscow will be able toarked Increase In hud currency Indebtedness Birring expertha USSR would have to coo liencrease tbe level of annual borrowing!an toow of imported good* while servicing aa ever-growiag debt, ll would beanor of year* before the Soviei leadership would find luolf potentially vulnerable to Wetter,and political leverage.
Weatera firms willignificantly greater managerial ivvcaucanent aad Western physicalwithin the Soviet Uaioo at part of aeythat meet Gorbachev'i demands for Western technology and managerial know-how.
Unlike thethe Soviet leadership viewed estnavnded tradeeans ofasically sound economic timetto tha West this time arouad anil be perceivedign that tbe regime is incapable of fisjag its economic problems on its own.
Notes
oil Mtobtry Looking for Increase In Investment AUeeatlan*
The lead articleecent bsue of the journal of the Sovtet oil ministry indicated for the firat lime lhat allocs Horn of capital invesimeni for the oil lector are notio maintain currctil levels or oil production. The artidc indicated that the investment requirement* of the oil sector are sharply increasing becaaac of tbe "ckpletion and falling productivity of man, dlnctda and the aeeeaally of nvaintaio-iag pUnned levels of production by tbe mats introduction of remote. Irr mtm oilfields -ilb conspkicaied geology and ia unravorablc environmental lceaiicra>
The oil sector movedelf-boa norsg basis In Jaaaary IMS. Appareaily. thesector is having trouble finding tbe rnorse, to joy for ,t. rsclaong ecryjpmeot needs. Tbe article abdicated thai, -bile slate orders account torerceci of oil outputtale orders for Ihe eayuapaaoat. materials, aad sttsoraraseautkai for use by tbe oil indaatiy account for oaly TOf theteeds. The ptaa to pay for the difference -ilbot worUog wed becaaae wholesale oil prices have rerosaincd low while oilfield equlpmeot coats bam risen sharply la addition, tbe article asserted that the macUrte-boaleUrtg ministries, priecaare not capable of producing all tbe needed cqaiprncot because celfield equipment is too "rsarrcwiy specialized."
Oil production, as indicated in the ankle, has rallen ia recent months. Oil ministry offtciab may be trying toase for Increasing investment allocations or. should oil output continue lo slip, preemptively defending their performance by blaming ihe decline on equipmeni shortages. If ibe Soviets decide to increase equipmeni deliveries to the oil sector, imporu from the West would probably Increase because most Soviei oilfield equipmeni plants are reportedly already operating at or near capacity.
Eceaoask Reform Schedule Rwblrsm
Tbe repairs on ihe Soviet draft plan and budget9 Indicate thai the Soviet leadership has made some adjustment! lo the schedule for implementing various economic reforms. Comparison of lb* reform goals78 (see ubte) discloses these changes:
Seers*
A substantial reduction la Hale or den..
"cce,ej"tododuc,fc**holesale trade in stale supply network,oal in IW <rf jo percentetoal8 ofoercent of sales.
An intreduction9 of regional and local telf-flnancing in Esionia. Latvia.SFskS$R dlow*
'? Provideern, live source of Invesiment funds for enierprlse*.
riculture and inof the Hate QuaUty-control program
The most dramatic change is the intent to reduce state orders in industry by more lhan9 because state order, made upa targe volumetate orders made upercent of industrial produclion Inaccordtng to Gosplan Chief Yuriy Maslyulcov. thoughy esigned to cover SO torcen, of the total volume of output in the -manufacturing Induslrylightly large, proportion in the ra- material and fud-energy industries. Gmcerued that output plans would not be fulfilled.
ZcT^'Z^ enterprises eagerly
accepted them because they rrseant guaranteed sispplics and ssles. In hi, report to
order, by sector for the coming year. From this information, we calculate^matelyf industrial prrductmnhat a. also tbcused by Soviet economist Abel
veSberTlS " U* cod of No-
IndTJ?stymied enterprise independence and slowed reform impiemenutroa. It may also have protected Indnstry fromorptions that could baveccearred because enterprises were unprepared to
dohis time, ministries are cooatrateed from coming to the rescuespresd complaints that ministries abused toe state order systemn mtcrlm provistoo"as adopted tha, prohibits ministries irom amending Gosplan-approved state orders and limits the categories of roods that can be induded in them
ranerud1!
UtW *" sa stass^W
32
Viewpoint
The views expressed in ihe following arilele are ihe author's and do not necessarilyIA consensus.
4
Uniied Lending lo ihe Sovieterspective
recent flurry of new credit lines offered the USSR bas fueled tbe ongoing controversy overnnd bow the West should -Underwrite" perer-iroyka. Some argue against any economic relations with the Soviet Union on the grounds lhat we have oo guaranteereslruaored" and hencestronger Soviet Union would pursue fewerat odds with those of the Western alliance. Some advocate restriction! only on lending to the Soviets lo finance trade because such money enables Soviei leaders to postpone tbe relocation of defenseio pressing civilian needs. The greatesthowever, rages over "uniied" lending; that is, loons provided with no Soviet commit menu lo any specific purchases and possibly provided with govern-meni subaidiration. The sire of these funds isby tome as well above what It needed to finance Soviet imports and to service debt, thus providing Moscow with substantial discretionary funds that can be used to maintain its overseas empire and fund activities that are Inimical to Western interests.
Underwriting Peres rroyka
Gorbachev recognises that the Westole to play in hii ambitious plans for the Soviet economy, but he. nonetheless, hopes io modernize largely from wllhln. Unlike past retimes, this new Soviet leadership ht aware that substantial Imporu of Western machinery and ecraipmeni areanacea, especially if the internal mechanisms are not In place to assimilate
effectively and diffuse such imporu. The Soviets currently bemoan the excessive amounts of unin-Sttiled imported erjuipment lying about in warehouses and the substantial annual interest paymenu that resulted from those hasty purchases. Moreover.remains loath to increase further Sovieton Western governments, companies, andiew no doubt reinforced by the Bast European debt crises in thend the USSR's financial picture, which is less certainof low energy earningsepreciating US drxUar.
Thus, foreigntied or antied,by Western governmenU ornot at present slated toig rose in modern tring the Sovietact home out by current Soviet financial behavior.
Moscow bas not borrowed much in recent years: indeed about Uvree-quartOT of the Sl9 billion rise io Soviet groat debi*7 is the result of exchange rate movements, notor example, Soviet reoaymenunew borrowings, with ibe entire increase In gross debt resulting from the appreciation ofourrencies-
To the client It ti borrowing, Moscow is looking increasingly to Uodeginning last -Moscow started turning to aovtrnmcai-backcd lines of credit geared toward reoject financing, and Ihc new lines are linked primarily to purchasei of machinery and equipment for lhc production of consumer goods. Mcaeow'i sicpped-ap esc of untied. general perpose borrowing in theaa driven largely by the low intern: rales socompany-ing ihc loans,eavy demand for unrestricted cash.
Tbe attractive termi accra-ded Moscow when it borrowseflection of iu end il wort hirteas, the economies of seal* Inherent In largend the lack of alternative borrower, Ai present. Wot era governments arc not subsidiiini leans to thenion and are adhering to OKCD guidelinea cm interest rales for lending with official backing
Ore rear Empire foreign credits altomall role in propping op regimes Ina Hidoi so Managua Ibc Soviet Unoe is experiencing considerable dilficuliy in maintainingj*wl commitments, io be sure, at resourcemake ito meel compeiing demands at bomc andestraint eat total leading to ibe USSR would have an adverse impact on its abilily lo support lu overseas empire But most Soviei sup-putt la in tbe form of iu own domestically produced prod ads. particularly arms and totrgy, thai arc provided to client states either fr*.cpsrg, c* with overly attractive financing lermv
Untied Western catbto some etieni probablyiu way through ibefinancial network and rod up financing overseas activities. Moscow goesreat lengths, however, to reduce actual hard currencyur annual baUstimates for tbe Soviet Union consistently show "errors andwe believe rncompasi hard currency etpendttuics on overseasless than S4 billion. This order of magnitude seem, reasonableonsiders that ihe US budget6 Ibis US upend it ares on Ihe conduct of foreign affairs and foreign Information and eichangcillion.
Given Moscow's more austere approach to funding ui missions abroad and tbe sefl nature of Soviet eipendi-tares in much of Ihe Third World, we are comfort* hie with the statement that actual hard currency cusU fall in tbc i) billion range or less.
Soviet aid to Cubaood ease In point, estimated annual economic aid to Cuba is oa lhc order ofillion, but0 minion of this is hard currency ending up in Cabin cceTert. Trot it the cash wc believe Moscow forwards to Havanaesult of selling oil destined for Cuba In Western oil markets.
Money is fungible, and li is highly unlikely thai (he elimination of untied credits, while not cutting overall lending, would impact eta Moscow's foreign ventures in any way. Al bestoss would prove te.he Sovieu could easily compensateoss of untied funds by stepping up their use of supplier credits Tbe twitch would not be without costs because Moscow could no longer easily up the Eurocurrency market aod would have to document imports Ixrore receiving credits But Westerninstitutions would, over tbe medium term, very likely develop rsechanisms allowing for tbe easier provision ofcredits to tbc USSR, laIhe Soviets could readily finance overseas acttvj-ties from current hard currency inflows, gold leserves. or assets on deposit in Wcsterii bunks. Total hard currency inflows from sDpool lhal Moscow can draw from hive averagedillionn addition, Moscow hat gold reserves worth wellillion ai current market prices andell too on deposit in Western bsnki
A Final Cottar
None of this is to imply that the Western alliance tides nottake In eradicating idstrategy to deal wiih Moscow's new coorttWMKor does il mean lhal the West could not improve upon its efforts to monilor Soviet financial flows. But these
men cs should be Badcrukco wilh lhc ursdcrstand-lag ihai ihe Weal will nn "make or break-economic program Gorbachev rccognUes thai
hii 'i-crmous ecoisorak probiemi are dorrvsaticjr* origin and rcQarrc Urgely dorneslk solutions
Attempts lo impose farther ret irk (ions on world capital markeu are proving divisive wis bin the Weal-em alliance, and, for the most pari, ibej concentrateather unahare of Moscow's current economic dealings wilh Ihe West. Thb year tbe Soviei Union's Imporu from the West are likely to lopillioa mark. To dala Moscow has abo completed overoini-vealur* contracu with Western firmsegotiating addifjoeal deab some reportedly worth billion of dolbn. Stub "mutually benef.iial, nonstra-tegk" transactions provide Gorbachev with/nr more fleijbilitj to cope with bard cheaces than do carreat tow levels of untied ccediu
Original document.
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