Created: 5/17/1974

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MEMORANDUM FOR: Associate Deputy Director for Recipients of Briefing Dook

following officials of the Treasuryare to receive single copies of the briefing booh:

Tho Honorable William E. Simon Secretary of tho Treasury

Mr.or Monetarythe Treasury

Mr. Gerald L. Parsky, Executive Assistant to tho Secretory of the Treasury

opies of the briefingto be transmitted to:

Mr. William Moroll

Special Assistant to the Secretary

for National Security Department of the Treasury


3rlofing materials

mini nilic

Soviet Foreign Policy and Detente

Two long-term factors were paramount in inducing the Soviets toolicy of detente with the West.

The technological gap.

ChincsQ hostility.

They remain of prime importance today and Soviet policy is aimed at:

successful summit in *

strengthening economic ties with the OS, especially by involving US corporations in major Sovietprojects;

in three major security negotiationsSALT, the European Security Conference, and force reduction in Europe.

There has, however,owering of Soviet expectations about the benefits of detente.

US diplomatic successes and Soviet reverses in the Middle East havelow to Soviet prestige.

Lack of progress on trade and credit concessions from the US has been

sharply disappointing. In response, Jewish emigration to Israel has been cut back by overercent this year.

President's political problems have given the Kremlin pause.

Soviet leaders still expect to reach new agreements with the President and they probably do not judge that his domestic difficulties are exploitable in negotiations. They are turning their attentionroader spectrum of US political ond business leaders to insure that progress on detente-related issues continues.


" X. Soviet Foreign Policy and Detente

II. Internal Political and Economic Developments in the USSR

III. Soviet Foreign Economic Policy Toward the West

XV. Soviet Hard Currency Payments

Grain Prospects in the USSR and Eastern Europo

VT. Soviet Energy Strategy

VII. Selected Biographies


Internal Political and Economic Developments in the USSR

There are many uncertainties about Kremlin politics, but we do not expect major changos in the

near term.

Brezhnev maintains his preeminentand there seems to be general agreement within the leadership on Soviet foreign and domestic policies.

The economic recovery3 after two lackluster years hasoon.

There are, however, clouds on the political horizon.

All of the top leaders are nearingr have reached it; some are in poor health and change is inevitable.

Productivity gains in the economy have been slow in coming.

Soviet policyad setback in Egypt, and political changes in the West (Pompidou and Brandt) have created uncertainties about the personal relationships Brezhnev has prized.

The fundamental problem of how to square the requirements of domestic control with those of detente is unresolved.

Economic prospects are likewise mixed, andear record increase3ercentgrowth will slacken



The spurt in GNP still left the goal or' overtaking the US as far away as ever; the dollar gap between the national products of the two countries expanded, as it hasf the pastears (see figure).

Farm, output will grow but by much less-than Industry may do better, in part becausearger flow of raw materials from the farms.

Continued shortfalls in meeting energy targets are likely, but they probably will not result in an industrial bottleneck.

The Soviet foreign trade position should improve considerably because of substantially higher prices for raw material exports and reduced outlays for grain.

USSR: Post-Khrushchev Rates of Economic Growth


national product

By producing sector Agriculture Industry Other




major end use

Per capita consumption


Soviet Foreign Econoniic Policy Toward the West

The chief Soviet goal in trade with the West is to obtain equipment and technology to raise the level of Soviet industrial technology and to achieve production goals more rapidly than Communist resources permit* Lately the Soviet leadership has increasingly emphasized the value of Western technology to boost lagging productivity and to narrow the large and widening technological gapis the West.

Soviet imports froa the West have doubledrom almostillion toillion

New Soviet contracts for Western equipment increased froa less than SI billion16 billion (See Table)

Soviet policy has also emphasized cooperative agreements with Western governments and firms to acquire technology and capital.

Cooperative ventures, mainly in resource development, haveajor Soviet vehicle for attracting Western investment.

cooperation agreements with Western governments have encouraged similar agreements between the USSR and individual Western firms.

The US hasajor target in efforts to secure advanced technology, equipment, and other commodities *

Soviet imports frcni the United States

rose0 million Grain inflated the totals, but imports of equipment increasedillion0 million in the same period.


contracts for US equipment haveincreased and will keep imports from

the US at high levels despite an expected decline in imports of grain.

The US is seeking US capital, technology, and know-how to holp develop Soviet resources, mainly gas and oil.

greements have led to moreozen Soviot technology agreements with US firms.

Soviet Equipment

from Developed

Million US S




Soviet Hard Currency Payments

In the past decade the USSR has been unable to generate sufficient exports to finance growing imports from Western (largely hard currency) countries. (Table 1)

5 deficits have been financed chiefly by credits. ong-tena debt was S2 billion. During that period, the Soviets rebuilt their depleted gold reserve, selling almost none.

oviet hard currency deficits rose dramaticallyabout SIS billion annuallybecause of record imports of grain and equipment.

Soviet gold reappeared in bullion markets and was used to financefeficit. Credits took care of most of the rest.

Soviet debt increased to6 billion (Table 2)

To ease its debt burden and to generate exports, the Soviets haveumber of so-called cooperative ventures vith Western firms which call for repayment of credits extended in the products developed by the venture.

The US has provided the Soviets with substantial credits since the2 Sunoit.

*0 million in long-term Eximbank credits.

0 million in long-term private credits.

0 millionear CCC credits for grain.


There hasurnaround in the Soviet hard currency picture.

High oil and raw material prices will increase Soviet exports substantially and grain imports will dropn export surplus is expected4 and probably

High gold prices provide an additional cushion. 0 an ounce, sales out of current production would earn the Soviets over SI billion4 and even more in subsequent years.

However, long-term payments prospects aro less favorable.

Debt will grow if imports continue to increase.

Total debt could rise to as much

oil exports7 will reduce Soviet export earnings.

increasing share of the debt will be

epaid by exports generated by cooperative ventures if current plans for ventures in oil, gas, timber, and coal are implemented.


Table 1

USSR Hard Currency Trade Deficit

Million US S



Baaed on official Soviet data b. Preliminary c- Estimated


Table 2

Schedule of Soviot Credit Drawings and Repayments from the Developed West

Million US $



to IntoreBt

to Principal





Grain Prospects in the CSSR and Eastern Europe

The outlook for4 grain crop in Communist Europe is uncertain at this tine. Bad weather slowed Soviet sowing operazicns in April, while rain in Eastern Europe ir. early May brought only marginal relief to drought-suricken crops there. The season is still early, however; such will depend on weather conditions over the next two months.

In the CSS3:

pace of spring sowing operations quickened in early .Hay, but sowing is still behind schedule. On the positive side, soil moisture is above average in the eastern part of the spring grain belt where sowing is about to begin. uccessful spring sowing campaign is needed tliis year to help offset above-average winterkill losses of crops sown last fall.

leadership has already issuedfor the harvest, which begins in July and continues into October. As in past years, an all-out effort is to be made to assure adequate manpower and machinery for the harvest*

In Eastern Europe:

A threatened drought was forestalled by rains in early May, enhancing the grain outlook in Hungary and Czechoslovakia. The rains brought only narginal relief to the other East European countries.

In general, soil -moisture conditions are still below noiraal.

Under theseuccessful grain harvest in Convxunist iurcpe zhis year will be heavily dependent on favorable weat-er during the cording weeks. In any event, unless weather conditions improve dramatically, the region is likely toet importer of grain during



Soviet Energy Strategy

The USSR is and will continue to bein energy for the foreseeable future. They expect production to grow by abouter yearate slightly less than was achieved in the past decade.


il and gas accounted forf the priJnary energy consumed,, peat, fuelwood, and oilydroelectricnd nuclear power less

During the next decade the share of oil and gas in energy use probably will increase'slightly, that of coal and hydroelectric power will decline, while nuclear power increases somewhat.

Oil fields in the Urals-Volga and other older producing regions are being depleted more rapidly than expected and rates of growth in production areto slow down. 2nnual oilgoals were not attained for the first time since World War II.

significant increases in output of

oil and gas will come from new fields being developed in Siberia and Central Asia (see map) .

Permafrost and the inhospitable climate create drilling, production, andproblems in Siberia.

In Central Asia, deep structures add to drilling problems, the high paraffinic content of the oil necessitates heating of pipelines, and the gas containssulfide that must be removed to avoid corrosion of pipelines.

The USSR haset exporter of oil53 it exportedillion bpd of crude oil and petroleum products.



.Of theseillion bpd went to non-Communist countries (primarily to Western Europe)illion to other Communist countries (mostly Eastern Europe).

The OSSR procuredpd from the Middle East and Africa, mostly for re-export to Eastern Europe on soviet account.

Given the declining rates of increase in production from older fields and the problems in developing new ones, it is doubtful that by the end of the decade the OSSR cansatisfy the.rising demands of its own economy, continue to meet most of Eastern Europe's needs, and increase exports of oil to the West.

To achieve these objectives, it may need to import sizable amounts of oil from the Middle East and Africa in.



Selected Biographies

The following biographies include those Soviet officials who axe likely to be -embers of the Soviet delegation to the fourth session oi the OS-USSR Commercial Commission.

Alkhimov, Vladimir Sergeyevich Xuz'min, Mikhail Romanovich Manzhulo. AleJcsey Kikolayevich Hikitkin, Nikolay Vasil'yevich Spandar'yan, Viktor 3orisovich Zinov'yev, Nikolay Vasil'yevich


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