Ill I n
CIA HISTORICAL REVIEW FSGSRAM RELEASE AS8
78
MEMORANDUM FOR: Diroctor of Economic Rosearch
THROUGH
FROM
Contribution to DOI Briefing Package for New
Administration
Attached for submission to Presentation Staff, OCI is the section the briefing package dealing with ths Soviet economy. It has been coordinated within OER and with OSR. Graphics have been arranged for.
The toxt follows along tho lines of that used for tho8 Congressional briefings ond will require roviaion and updating for9 exercise after we get9 budget and plan annouacemonts ia December.
If'
Enclosure:
As stated above
, T
PCIor Haw AoV_inlstrntion. November
THE SOVIET ycpHflMT
I. The oconomy of tho Soviet Union curronUyixed picture in which today's gains have boon bought at tbe oxponee of tomorrow's problems.
1 have already noted, tho economy i3 supporting themilitary upending lovol in history,
growth rate for groos national product has turnedittle.
of the past throe yeara have been good to oxcellent.
Soviet consumer has onjoyod more goods in tbe stores.in his pocket to buy them, and tho promise of stillin hia real income over the next two years.
plus Bigna, however, havo boon accomplished in partweather--which cannot bo counted on everyby nJeimpIng on tbo investments essential toin both agriculture and industry.
(CHART, RATES OF GROWTH OF GNP, INDUSTRY AND AGRICULTURE) II. During tho past two years, the Soviot economy pickodittle
momentum following the slowdown in tho preceding five yoars. Gross national product increased byercent annually6omparedercent1 8 Soviet CMP will probably lncreaae by aboutercent. Even so, however, the Soviot oconomy hoe not regained tho high growth rates it had duringa.
hlghor growth of thooars was due In part to thoin agriculture.
68 tho USSR harvested the largest gruin crops ln Its history,lightly better than avorago crop also was harvested Grain output in these three years averaged moreifth above the avorago for the first hair of the docade.
Greatly increased supplies of fertilizer, plus higher prices paid to farmers, contributed to thia surge In output of grain and other faro products, but good weather was tho most important faotor.
rato of growth of Industrial production picked Itittleorcont1 Industrial growth appoars toagainowever. The rates fors arethose achieved ina.
A substantial part of industry's higher growth67 was duo to the larger supplies of agricultural raw materials resulting from tha good oropa.
Also important was the fact that many of the plants hastily built and commissioned under Khrushchev's regime finally started producing somewhere near capacity.
. AND SOVIET GROSS NATIONAL PRODUCT)
CNP grow faotor. GNP67 und ahouldagain Nevertheless tho Soviet occnony ia still lossthn also of our a, and the absolute gap between our GNP andto wldon,
A. Aa you tay know, thuy allocate thoir total output differently from tho way wo do. Their allocations atroaa tbe elonente of national powor.
In dollar values, Soviet spending for defeneo lo about four flftha of oura, and Soviet outlays for now fixed capital are about throo-quartera of ours.
Whon it cornea tooviet population that is almost ono fifth larger than ouro gota only one third of what ia apont for consumption horo.
(CHART, RATESROWTH OF COaoTKPTIOH, DEFENSE AND IHVESTH2NT)
USSR has made eomo elgnlficant changes ln tbe allocation of.
A. argor share of GNP wont to the marshals. Defenso expendituresercent annually, three tinea as feat as inpreceding fivo yoara, and are continuing to rioo* Sponding for advanced weapons and spaceespecially
for research andgrowing two or throe times as
fast aa total defonse cutlers.
2. Thisevere drag on the whole oconomy. Those programs siphon off tho most highly skilled engineers and scientists. They have first call on scarce strategic materials, sophisticated electronics and tho most advanced industrial processes. These are the very kind of resourceo that the rest of the economy needs to modernise and to assure rapid technological development. B. Consumers farad much better than before.
More and better quality food became available because of the improvement in agriculture.
There were also substantially larger supplies of clothing and of eonaumor durables, particularly washing machines and TV seta.
in industry and agriculture was slighted.
The rate of growth of investment in industry dropped by ono third from the already low rates1
Investment in agriculture also grew much more slowly than in the earlier period. The rate was only half that scheduled
ln Brezhnev's big program to get agriculture out of the doldrums. (CHART, PRODUCTION OF MACHINERY AND WEAPONS)
diversion of rosourcos away from investment inagriculture shows up especially clearly when we comparerates of macliinery production with those for weapons production.
6roduction of military equipment increased onealf times aa fast as production of machinery and equipment for civilian purposes.
So, for the moment at least, investment In the basic producingkey to future growth of thehas
yieldod priority to the marshals and to consumers.
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Recont Soviot announconento suggest that these gonorai policies are continuing.
vas inpllclt in the announcedercent increase ln8 and anercent increase in tho budgetwhich includes substantial aoounts ofnd
tho data are very meager indeed, investment ln industrymay not grow any faster from now0 than it did
in tho pact throo years.
will continue to gain.
Tho effects of large increases in minimum wages and other welfare programs introduced8 will be felt fully
Per capita real income is scheduled to go up by aboutercent annually9
Coals for largo Increases in production of automobiles, television ooto, refrigerators and other consumer durabloa have boon retained.
all of these golden promises are likely to be fulfilled. Inote that ovon if they are carried out, tho lot of thewill still not bo enviable by Masters standards.
1. Tho average citizen will continuo to live in cramped and crowded quarters. Per capita housing space won't even have reached the level that tho Soviets themselves have set as tho minimum for health and decencysquare motors per capita.
Availabilities of such things as television sots and refrigerators still will bo below tho so In. and Western Europe-.
Tbe poopio'a dietill be loaded with bread and potatoes instead of the coat and dairy products they would like.
U. Queues and shoddy goods etill willally trial and tribulation.
5. rickle of automobiles will be made available for private use. Even0 goals are met, the USSR will have only half as many automobiles per eapita as Creeco does now. zoch or an East Gorman nowotter chance ofar thanoviet citizen.
By favoring defense and being niggardly with investment, the Soviets are risking another slowdown in economic growth like that of thaa. If prosent priorities are malntainod, here is tho outlook:
and modernization of the hdustrial plant will havedown. Tho over-all technological level of Soviet industryeven further behind the West than it already does.
will not be getting tho macblnory, qualityfunds for land lcprovoxont that it needs to ensure etabio Ton will recall that35 poor harvests forced the
Agriculture will remain grossly inefficient in comparison with
Western countries. It now ueos morehird of the total
labor foroo.
USSR to spend more5 billion of its scarce gold roeervoo
J
ay not got all thond services to matchincome gains they have received.
Cuthacko in investment in Industry mean that ultimately production of consumer goods will bo affected.
Cutbacks in investment allocations to agriculture jeopardize the chances for more quality foods like moat and milk.
ahead only over tbe noxt tvo years, that is,tho last year of the current five year plan, vo think thatgrowth of GNP ia likely lo fall back somewhat from.
li ritical factor will bo tbe weather for agriculture. Exceptional weather cannot bo counted on to produco good harvests every year.
2. lowdownho growth of induatrial productionay or may not regain the unspectacular rate achieved. An important factor here will be in the impact ofthe economic reform that tbey are now carrying out. Initially it sooma to beemporary beneficial impact on productivity. Tho reforms are not very far-reaching, however, and in our judgment thoy will not cure the long-standing ills of tho Soviet system of economic management.
3. Anotber key factor will be the future trend in defense spending.
4. Ultimately, howovor, the largo cutback in investment in the post few years is bound to affect economic growth adversely. Some of tho Soviet leaders already recognlzo this. Indeed, how best to allocate thoimited resources seems toot issue ln the Kremlin at tho momont.
(CHART, SOVIET FOREIGN TRADE) VII. Theoreign trade continued to grow rapidlynd ita
A. About two thirds of Soviet foreign trade is with Communist countries, and one third with tho Free World. 1. rado with Western industrialized countries haa
increased rapidly as the USSR haa sought to upgrade the quality
of Its industrial plant by importing equipment and technology.
Soviet trade with the less developed countries has tended to stagnate in tho past several yoars. Much of this trade doponda on Soviot willingness to extend
The USSR's trado with China has continued to decline and
has now fallen0 million, compared with more thanillion. The USSR's hard currency position Improved dramatically7 and continues to be favorable Gold reserves have rieon 'accordingly.
1. Because of chronic difficulties in finding products that Wostorn
countries will buy, the USSR lor many yearsard currency
deficit with tho Weat. The Soviets had to eell gold and also to
seek crodits to pay for needed imports. owever, they managed to increase exports and to reduce imports substantially, thus achieving their first hard currency surplus in nearlyoars. It amounted lo0 million and should bo about the sumoCHART, SOVIET GOLD RESERVES)
account of the bad crop years3he USSRto sell large amounts of gold to pay for emergencywheat and also for machinery. esult. Its goldfrom more thanillion2 to aboutillion
The USSR has sold almost no goldnd its gold reserves should boA billion by the end of this year.
Tho USSR now produces0 million in gold each year. Despite very high production coots, the Soviets are carrying
rogram of expanding the industry atercent annually. VIII. The USSR has continued bo dispense foreign aidboth economic and millUryto its Communist allies as well as to Free World less developed countries.
A. Total Soviet economic aid was8 billion6 but dropped off toalf billion dollars Economic aid to Communist countries7 was0 milliondown0 millionnd was dividedetween North Vlotnam and Cuba. 8 total Soviet economic aid has risen to aboutillion, with more0 million going te tho Communist countries. Aid to North Vietnam ioittle above last year.
B. Total Soviet military aid7 was1 billion, up from0 million Military aid7 was split almost equally between the Communist countries (mainly North Vietnam) and the Free World less dovoloped countries. Military aid to the less developed countries8 is down by perhaps two-thirds froa the total committedilitary aid to Communist countries (mostly to North Vietnam) is running at roughly the same rate as hall go into moro detail concerning Communist aid to North Vietnameal specifically with the war in Vietnam. (CHART, SOVIET FOREIGN AID ACTIVITY IH THE FREE WORLD)
D. ant to discuss Soviet economic and military aid to countries in the Froo World. There are as yot no signs that the preoccupation with resource allocation problems at home is leading the Soviets to curtail the program of economic andd to Free World countries.
he OSSRecord of3 billionaid. More0 million of this represented
a commitment to support India's five-year plan. Large credits were also granted to Iran, Syria, and Brazil.
xtensions of economic aid dropped sharply, to aboutand recovered to only0 million Thisabout half of the average annual amount extended in the
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oars. Tha reduced level of new aid undertakings78 apparentlyack of suitable opportunitio: ratherhange in policy. At the end7 there was5 billion of Soviet aid still to be delivered under aid extended in provious yoars. 3. The Soviets do soem to beit tougher with their aid.
are being aore seloctivc with the kinds ofso as toreater degree of success.
of the credits aro becoming core trade-orientedaretoears for repayment Insteadnd an interost rateercent. Occasionally down paymentsand repayments sometimes must bo made partlycurrency.
Extensions of Soviet military aid have fluctuated widely from year to year,ecord of almostillion. The annual average over the past decade, however, has been0 million. 1. 5 million of military aid extended7 reflected the teavy Soviet resupply operations in the OAR, Iraq and Syria following the Arab-Israeli war in June. Now aid extended toountrloo accounted for almostercent of the total. Earlier in tho yoar, an arms agreement was signed with Iran, the first one Iran had signedommunist country. Agreements also were concluded with Nigeriam n, and military goods were airlifted to those countries.
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2. d agreements have been concluded with atountries Although the total value of these agreements is not known, it i3 probably no more than one-third of the total committed
Soviet deliveries of military equipment declined8 as supply
to Arab countriesore normal rate.
During and immediately after the June war, the USSR rushed huge supplies of military equipment to the Arab countries. With the near completion of resupply, Soviet deliveries havo fallen off and now approximate the pre-war rate.
We believe that the USSR has replaced at leastercent of the0 million worth of military equipment destroyed or lost during the war with Israel. Continued supply probably will provide for modernization and some increase in the overall level of Arab inventories beyond the7 level.
Soviet deliveries to other major arms customers this year include significantly larger amounts to India (principallyighter bombers) and small shipments to both Algeria and Afghanistan.
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Original document.
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