PROPOSED DISSEMINATION FOR SOVIET ECONOMY: 1974 RESULTS AND 1975 PROSPECTS COLLEGES AND UNIVERSITIES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00928A000100130003-8
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 36
• Document Creation Date: December 16, 2016
• Document Release Date: March 29, 2005
• Sequence Number: 3
• Publication Date: March 25, 1975
• Content Type: LIST

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Research Aid
The Soviet Economy.
1974 Results and 1975 Prospects
A (ER) 75-62
March 1975
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The Soviet Economy:
1974 Results and 1975 Prospects
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The Soviet Economy:
1974 Results
and 1975 Prospects
Moscow feels more secure about its position in the international economy
than ever before. Soviet economic growth continues, at a moderate rate, while
output is declining in many Western economies. Because of its centrally controlled
economy and its economic self-sufficiency, the USSR has been shielded from the
recession and double-digit inflation plaguing the West. Thanks to an export surplus
in oil and raw materials, the Soviet balance of payments has benefited from high
world market prices. But basic problems of low efficiency and an inability to
quickly apply new technology remain, and Moscow cannot readily translate its
temporary advantages in dealing with the West into remedies for its long-term
economic ills.
? Overall Soviet growth slowed to 3% in 1974.
? A slump in farm output caused by poor weather was the major cause
of last year's slowdown; still, agriculture enjoyed its second best year
ever.
? Although consumers made smaller gains in living standards than in 1973,
the regime's commitment to improving levels of living remains firm. Prices
continued stable, although, as usual, not all goods and services were
regularly available at official prices.
? Trade with the West boomed in 1974, with price increases for Soviet
oil and other raw materials far outweighing price increases for imports;
the result was a major turnabout in Moscow's hard currency position.
? The trade deficit with the United States fell to one-fourth of its 1973
level, largely because of smaller grain imports and larger exports of
platinum and oil.
Soviet leaders anticipate a rebound in economic growth in 1975. This
expectation is reasonable, although major goals of the five-year planning period
(1971-75) are unattainable.
? Overall economic growth is scheduled to rise by 7%, twice the 1974
rate. The Soviet Union could narrow the economic gap with the United
States by a record amount.
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? Agricultural production is listed for an 11% increase, after last year's
disappointing performance. So far, weather and soil conditions look good
for a bumper grain crop.
? Industrial growth is to match last year's pace; success will depend on
the timely completion and equipping of investment projects.
? Consumers retain a high priority. Notwithstanding, many five-year
consumption goals will not be met, because of the disappointing harvests
of 1972 and 1974 and the lagging construction of new consumer goods
capacity.
? Trade with the West will continue to boom, with Moscow well able to
step up purchases of machinery and technology; the Soviet hard currency
position will remain strong because of exports of high-priced oil and other
raw materials and of possible gold sales.
From a longer run perspective, the Soviet economy continues to be restrained
by endemic problems which are largely responsible for the failure to meet major
five-year plan goals.
? Increases in productivity remain below expectations, particularly in the
farm sector.
? The slow introduction of new techniques and new products into
large-scale production continues to characterize Soviet industry and is
unlikely to be remedied by the piecemeal reforms under consideration.
? The poor assortment and quality of consumer goods, unresponsive
services, and limited housing persist.
We believe that the relatively good internal growth and the greatly strengthened
external economic position will allow the leadership to put off bold innovative
reforms needed to solve these basic problems.
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Economic Performance in 1974
1. Soviet economic growth slowed markedly in 1974. According to our
preliminary calculations, gross national product (GNP) rose by 3.2%, less than
one-half the 1973 rate. A 3.3% dip in agricultural output exerted a serious drag
on overall economic growth because agriculture represents almost one-fourth of
GNP. Industrial growth, the largest component of GNP, had its best year since
1970 (see Table 1).
USSR: Growth of GNP, by Sector of Origins
Average
Prelim-
Annual
wary
1966-70
1971
1972
1973
1974
Gross national product,
by producing sector
5.5
4.2
1.8
7.5
3.2
Agriculture2
4.6
0.1
-7.0
16.4
-3.3
Civilian industry
6.8
6.5
5.6
6.2
6.8
Construction
7.0
8.7
6.4
2.2
5.0
Transportation and
communications
6.2
6.6
4.9
7.3
6.6
Domestic trade
8.2
6.8
6.9
5.4
5.9
Services
4.4
4.0
4.2
3.7
3.7
1. Calculated at factor cost.
2. This measure of agricultural output excludes intra-agricultural use of farm products but does not make an
adjustment for purchases by agriculture from other sectors. Value added in agriculture grew by an average of
4.1% in 1966-70, 0.6% in 1971, -9.1% in 1972, 16.5% in 1973, and -5.2% in 1974.
2. The Soviet leadership seems generally satisfied with economic
performance. The tone of the economic report of last December's Communist Party
plenum was much less critical of economic pfanning and management than the
previous year's report. Although old problems were recounted -- low productivity,
uncompleted construction projects, poor economic management, and the slow
introduction of new technology - no hints were given, as in 1973, of imminent
economic reform.
1
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3. The more complacent note probably results from several factors:
? Growth in GNP compared favorably with growth in the recession-hit West.
In fact, the absolute difference in GNP between the United States and
the USSR declined in 1974 by a record $50 billion (see Figure 1).1
? Industrial production - the economic bellwether of the leadership - was
in high gear.
? Grain output at 195.6 million metric tons was the second highest in
history, and cotton production reached a new peak. Moscow contracted
for only 7 million tons of grain for delivery in FY 1975 and carried
over large grain stocks from the 1973 record harvest.
? Consumer welfare continued its steady rise. Moscow's broadcasts to the
West in the last year touted the price and employment stability
characterizing the Soviet system.
? Increases in the world prices of oil and other Soviet raw materials resulted
in a hard currency surplus of about $1 billion, compared with nearly
a $1 billion average deficit in 1970-73. This development is strengthening
Moscow's ability to import Western technology and equipment.
Industry
4. Industrial output grew by an estimated 6.8% in 1.974 - the largest annual
increase since 1970 (see Table 2). Adequate supplies of raw materials and energy
were major factors contributing to this growth. Moreover, nearly two-thirds more
workers were added to industrial payrolls than was planned, and only minor
disruptions of the industrial supply system and labor force occurred during the
peak harvest activities. Industrial labor productivity increased 6.5%, the highest
rate in this five-year plan period. The industrial branches contributing most to
the good performance were:
? Most energy producing branches, led by oil and gas.
1. This narrowing of the gap has occurred in three other years since 1960. A further narrowing is in prospect
for 1975 as a result of continued Soviet growth and an expected decline in US GNP. A reversal is likely
during the next upsurge in the US business cycle. Because the US economy is twice the size of the Soviet
economy, US growth need be little greater than one-half of Soviet growth to widen the gap again.
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? Producer durables, in particular, automobiles, technically sophisticated
capital goods (turbines, instruments, and computers), and agricultural
equipment. The production record of these items mirrors the leadership's
priority for technological growth and expansion of agricultural output.
? Processed foods, reflecting the increased supply of agricultural raw
materials from the record harvest in 1973.
? Chemical products, especially mineral fertilizers and pesticides, again
reflecting the importance given to agriculture.
USSR: Growth of Civilian Industrial Output
Percent
Average
Prelim-
Annual
inary
1966-70
1971
1972
1973
1974
Total civilian industry
6.8
6.5
5.6
6.2
6.8
Leading branches in 1974
Electric power
7.9
8.1
7.1
6.6
6.6
Coal products
2.0
2.5
2.1
2.0
2.6
Petroleum products
and natural gas
7.8
6.9
7.3
6.3
7.1
Civilian machinery
9.1
11.5
10.5
10.0
10.8
Processed foods
4.7
3.0
3.5
3.1
9.1
Chemicals
9.0
8.1
6.9
8.1
9.9
Lagging branches in 1974
Ferrous metals
5.5
3.9
3.6
4.0
3.3
Nonferrous metals
8.3
5.1
4.9
7.0
6.0
Forest products
3.5
3.7
3.3
4.3
2.8
Paper and paperboard
7.2
5.5
4.5
6.0
4.0
Construction materials
6.2
5.7
4.6
5.7
5.0
Soft goods
8.0
4.5
0.6
3.4
2.5
5. Growth slowed in all other industrial branches in 1974, largely because
of delays in construction of new facilities and difficulties encountered in bringing
new capacity into production.
Energy Production
6. The USSR is richly endowed with fuels and electric power resources,
a factor strengthening the Soviet position in today's energy-hungry world. In 1974
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US-USSR: GNP
Figure 1
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the 5.9% growth of primary energy production well exceeded the 5.0% average
growth of the preceding eight years. Output was sufficient to meet the needs of
the Soviet economy as well as to provide a growing surplus for export. Production
targets set in the original five-year plan generally have not been met, however,
with coal an exception.
7. In 1974 the Soviet petroleum industry confronted technical problems
that may restrict or even stop growth in production by the late 1970s. The rate
of discovery of new oil reserves faltered because of the poor quality of seismic
and drilling equipment and the inadequacy of funds allocated to exploration. Proved
oil reserves thus were depleted more rapidly than expected. Soviet technical experts
acknowledge that Western equipment and technology would be of substantial help
in locating and developing new oil fields, particularly offshore.
8. The output of natural gas in 1974, although below the original plan,
still was 10.5% above the 1973 level. Growth can be attributed to the completion
of large-.diameter pipelines from major gas deposits in northern Tyumen Oblast
and in Central Asia. The Soviets are becoming increasingly dependent on imports
of large-diameter pipe, compressors, and valves from the West. In 1974 alone, the
USSR contracted for about 4 million tons of large-diameter pipe from Western
Europe for delivery through 1979. In return for these and earlier contracts, the
USSR will supply 24 billion cubic meters of natural gas annually to Western Europe
by 1980.
9. Coal output in 1974 exceeded the original five-year plan target as it had
in 1971-73. These increases, although small, helped cushion the shortfalls in oil
and gas production.
10. A decline in the growth of electric power production during this five-year
plan period is largely a result of (a) slow growth in hydroelectric power output
because of a lack of rainfall in the European USSR, and (b) a lag in the erection
of new powerplants. In 1974, less than 10,000 megawatts (MW) of capacity were
put into operation, instead of the 11,300 MW planned.
11. The machinery sector led the growth parade again in 1974; high
performers within the sector were:
5
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Percentage Increase
in Output
Computer equipment
34
Vacuum cleaners
25
Passenger cars
22
Agricultural machinery
16
Chemical equipment
12
Textile industry equipment
12
Food industry equipment
10
12. An increase of 50% was estimated for the second-generation Minsk-32
computer and 200%-300% for the new RYAD family of third-generation computers.
Although coming in slightly below plan, the passenger car industry performed well.
The Tol'yatti plant operated near capacity toward the end of 1974, and the recently
expanded plants in Moscow and Izhevsk producing Moskvich automobiles should
reach capacity during 1975. The agricultural machinery industry has turned in an
impressive performance during 1971-74, growing at an annual average rate of 13%
compared with about 6% in 1966-70.
13. Another star performer was the chemical industry, although it was berated
by the press for the second straight year for failing to complete facilities on
schedule. The commissioning of new production capacity for fertilizer production
was only two-thirds the amount planned, and new plastics production capacity
commissioned in 1974 was less than in any year during 1970-73. Furthermore,
the availability and quality of many chemical products such as tires and manmade
fibers continued to fall below demand. The chronic inability of Soviet industry
to meet requirements for modern chemical equipment resulted in record
purchases - US $1.1 billion - of Western chemical equipment in 1974.
14. In 1974 the Soviets regained their position as the world's largest steel
producer. As in the chemical industry, however, the failure to broaden the
assortment and produce high-technology items spurred increasing imports from the
West. Moscow now imports such special types as large-diameter pipe, oil field
tubular steel, and flat rolled products. In 1973 the value of imports of steel
exceeded the value of exports for the first time in many years. These difficulties
are attributable to the lagging rate of construction of new capacity. Only 6.9 million
tons of new crude steelmaking capacity were completed in 1971-74, compared
with planned construction of 21.8 million tons of capacity in 1971-75. Recent
Soviet efforts to procure foreign equipment and technology will yield only limited
benefits during the remainder of the 1970s.
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Agriculture
15. Despite poor weather in major crop regions, agricultural output in 1974
was the second largest in Soviet history. Compared with the record year of 1973,
however, last year's agricultural output fell sharply, pulled down by a drop of
13.2% in crop production (see Figure 2). Livestock output, bolstered by good feed
supplies from the 1973 crop, grew by 7.9%.
USSR: Percentage Change of Agricultural Output
Total Net Farm Output
1971
1972
1973
1974
I I I, I ( V I I I I I I I I 1 1 I I I
Total Crops*
1971
1972
1973
1974
Net Livestock Production**
1971
1972
1973
1974
I'I'I'I'IIIIIIIII'I'I'I'I
-16 -12 -8 -4 0 4 8 12 16 20 24 28 32
*Less grain and potatoes used for seed.
**Gross livestock production less grain, potatoes, vegetables, and
milk fed to livestock and hatching eggs.
16. Production of all major crops except cotton was down from the records
achieved in 1973 (see Table 3). Grain output, although the second largest in Soviet
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USSR: Production of Selected Crops and Livestock Products
Average
Prelim-
Annual
inary
1966-70
1971
1972
1973
1974
Crops
Grain (gross)
167.7
181.2
168.2
222.5
195.6
Potatoes
94.8
92.7
78.3
108.2
80.7
Sugar beets
81.1
72.2
76.4
87.0
76.4
Sunflower seedsi
5.9
5.2
4.6
6.8
6.2
Vegetables
19.5
20.8
19.9
25.9
23.1
Cotton
6.1
7.1
7.3
7.7
8.4
Livestock products
Meat (slaughter weight) 11,583 13,272 13,633 13,527 14,500
Milk 80,553 83,183 83,181 88,300 91,800
Wool 398 429 420 433 461
history at 195.6 million tons, was 12.1% below 1973 and almost 10 million tons
shy of the plan goal. Winter grains suffered from above-normal winterkill, and a
summer drought in parts of the New Lands area reduced the output of spring
grains. As a result, the wheat crop was the smallest since 1969 -- 83.8 million
tons, compared with 109.7 million tons in 1973. Late planting and cool, wet
weather at the end of the growing season dropped the corn harvest 8% below
the 1973 level despite a 12% increase in acreage planted.
17. Grain production was 5-10 million tons short of domestic requirements
and export commitments. Soviet leaders had the option of reducing reserves built
up after the 1973 harvest or importing foreign grain. They apparently chose to
leave the stocks largely untouched and contracted to import almost 7 million tons
of. grain for delivery in FY 1975. In early 1975, Moscow canceled 232,000 tons
of the wheat imports, which had probably represented a small hedge against
continued tight world supplies and a poor harvest in 1975. World grain prices now
are declining, and prospects for the Soviet winter grain crop are excellent.
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18. In addition to damaging the corn crop, the poor fall weather also trimmed
the potato and sugar beet harvests. Disease and damage from wetness not only
reduced the potato crop by 25% but also will cause abnormal storage losses.
Potatoes are important j as both a food and livestock feed, particularly for hogs.
Sugar beet output was 12% below last year. The estimated 8.6 million tons of
sugar produced from these beets combined with anticipated 1975 imports of about
1.9 million tons from Cuba and recent foreign purchases of another 270,000 tons
will still leave the Soviets about 1 million tons short of planned requirements.
This gap may be filled by reducing consumption as in 1972, reducing already low
stocks, or contracting for additional imports. Current short supplies and high prices
on world markets may discourage additional imports, particularly since the recent
Soviet purchases were a major factor in boosting sugar prices to record levels in
November 1974.
19. Production of sunflower seeds, which provide about three-fourths of
Soviet vegetable oil, was above plan, but 9% short of the 1973 record. The current
crop should permit continued exports of sunflower seed oil, made particularly
attractive by high world prices.
20. Brezhnev's livestock program continued to chalk up impressive gains in
1974 (see Table 4). All major categories of livestock herds grew; the number of
cattle was up 3%. Livestock products were also more abundant; meat output was
up 1 million tons in 1974 after having dropped slightly in 1973. Higher slaughter
weights and milk yields reflected improved feeding rates.
Cattle
99.2
102.4
104.0
106.3
109.1
Of which:
Cows
41.0
41.2
41.7
41.5
41.9
Hogs
67.5
71.4
66.6
70.0
72.2
Sheep and goats
143.4
145.3
144.7
148.5
151.1
21. The two disappointing harvests - 1972 and 1974 - of this five-year plan
period apparently have not shaken the leadership's belief that large annual
fluctuations in farm output can eventually be ironed out by generous injections
of investment resources. In 1974, the ambitious Brezhnev program for agriculture
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continued to be implemented on schedule, and new schemes to stabilize this sector's
contribution to growth were introduced. Total investment in agriculture last year
rose by 9% and took more than one-fourth of the country's investment resources.
Since 1970, mineral fertilizer deliveries to the farms have increased by almost 9%
annually. Additional large sums have been spent on modernizing the livestock sector,
building new grain elevators, and reclaiming land.
22. In March 1974, Brezhnev unveiled a 15-year plan to develop the
non-black-soil zone of the Russian Republic (see Figure 3). In the first phase,
1975-80, 35 billion rubles will be spent, a sum equivalent to almost one-fourth
of the total agricultural investment planned for 1971-75. The new program will
include land reclamation projects (irrigation and drainage) as well as the application
of more agricultural chemicals, delivery of new machinery, and the construction
of livestock complexes and infrastructure (rural housing, services, and roads).
23. The non-black-soil zone is already an important producer of agricultural
products and was targeted for some attention in Brezhnev's earlier agricultural
programs of 1965 and 1970. Although it has a relatively short growing season,
the zone has the highest average annual rainfall of any agricultural area in the
European USSR. The Soviets hope that the area will become a stable base for
grain output to counter erratic production caused by undependable rain in the
New Lands and the black-soil zone. An added incentive is that the program will
not require the huge influx of additional workers that was needed for the
development of the New Lands, because this area is already heavily populated.
In any case, major benefits from the non-black-soil program will not be realized
before 1980.
Capital Investment
24. The leadership has tried to concentrate investment resources on the
expansion and modernization of already existing plants and on the completion
of projects long under way. In 1974, investment was again focused upon completing
on-going projects. However, gross additions of new fixed capital increased by only
4%, only two-fifths the rate achieved in 1973 (see Table 5). This slowdown
probably reflects shortfalls in the procurement and installation of equipment rather
than a return to the proliferation of new construction starts that characterized
previous Soviet investment programs.
25. Press articles and leaders' speeches indicate that the construction sector
was the chief economic headache of 1974. Gosplan Chairman N.K. Baybakov's
10
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USSR: The Non-Black Soil Zone*
Ukr~iniaJi-$?SR.
ssnodar ~-~
K, ay
"Soviet terminology for a specific area
>kazan'
December speech attributed numerous unfilled output goals, particularly consumer
goods, to the failure to put new capacity into production. Lagging capital
construction represents a seemingly irremediable flaw in the management of the
economy.
26. Economic planners had originally depended upon a brisk construction
pace to support the acceleration in production scheduled for 1974-75, the last
two years of the five-year plan. This timetable does not conform to Soviet
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Table 5
USSR: Growth in Capital Investment
Average
Prelim-
Annual
inary
.1966-70
1971
1972
1973
1974
Total new fixed
investment
7.6
7.2
7.1
4.6
7.2
Gross additions
of new fixed
capital
8.3
6.3
3.3
10.5
4.0
Backlog of unfinished
construction
12.1
10.3
12.7
2.9
N.A.
experience. In past five-year plans, lags in construction have led to a bunching
of completed projects toward the end of the plan period, which in turn has resulted
in increased production in the early years of the next plan.
Consumer Welfare
27. The consumer enjoyed another noticeable increase in his level of living
in 1974; the improvement was slightly smaller than in 1973 (see Table 6). Special
indicators of increasing affluence were among the biggest gainers. High-quality foods
such as meat and dairy products became more available as promised by the Brezhnev
farm program; per capita consumption of animal products rose 4.4% and of
processed foods by 3.6%. Increased consumption of soft goods, largely shoes and
clothing, suggests that the campaign for better quality may be producing results
at last. The reduction in inventories may also be the result of price reductions
on slow-moving items.
28. Purchases of consumer durables in 1974 were led by a 7% growth in
furniture sales and a whopping 35% growth in automobile sales to the public. Soviet
citizens bought 64% of annual automobile output, compared with only 36% in
1970 (see Table 7). The services network and other supporting facilities are not
keeping pace with output.
29. In the services category, housing continued to be the consumer's most
pressing problem. Despite an enormous construction program -- an average of 108.6
million square meters of new housing added annually since 1970 - per capita living
12
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USSR: Growth in Per Capita Consumption)
Average
Prelim-
Annual
inary
1966-70
1971
1972
1973
1974
Total consumption
5.0
3.6
1.5
3.4
3.2
Food
3.9
3.3
0.1
3.6
3.0
Soft goods
6.6
3.4
1.3
2.2
2.5
Durable goods
8.4
4.3
6.1
5.3
5.1
Personal services
6.7
5.8
6.1
4.6
5.4
USSR: Automobile Production and Sales to the Public
1970
1971
1972
1973
1974
Production
344
529
730
917
1,119
Sales to the public
123
222
378
532
718
Sales as share
of production
36
42
52
58
64
space has grown by only 8%, from 7.5 to 8.1 square meters. On the bright side,
the number of communal apartments - shared kitchen and bath facilities -- is
declining, as more families move into private apartments.
30. The slower growth in the consumption of some consumer items in 1974
reflected either the downturn in farm output or the increasing sophistication of
the Soviet consumer. Poor weather reduced supplies of potatoes, vegetables, and
fruits. Per capita consumption of most durable goods did not match the growth
in their production, indicating the increasing reluctance of the Soviet consumer
to buy goods of poor quality and variety.
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31. Wages and per capita income in 1974 continued to fall behind the planned
rates (see Table 8). Much of the Brezhnev's 1971-75 "welfare package," including
raising the minimum wage and reducing taxes for low-income workers, has been
delayed in order to keep incomes in line with available goods and services.
Nevertheless, savings accounts increased by 15% to nearly 80 billion rubles in 1974;
they are now equivalent to about 35% of total money incomes, up from 25%
in 1970.
USSR: Growth of Income and Wages
Average
Prelim-
Average
Annual
Annual
inary
1971-75
1966-70
1971
1972
1973
1974
Plan
Real per capita income
5.8
4.5
3.7
5.0
4.2
5.5
Wages of non-farm workers
4.8
3.2
3.5
3.7
4.3
4.1
Wages of farm workers
8.0
3.0
4.7
5.9
5.0
5.5
32. The open discussions following recent public lectures in Moscow and
Leningrad indicate some discontent among workers that the five-year plan promises
to raise wages and benefits have not been kept. Perhaps in recognition of this
concern, some of the welfare measures will be enacted in 1975, including an increase
in the minimum wage (promised since 1971) and the redemption of 1 billion rubles
of bonds (frozen since 1958).
Foreign Trade
33. Soviet foreign trade increased by almost 24% in 1974 and totaled more
than $52 billion (see Figure 4). Trade with the developed West grew about 48%,
following a nearly 59% increase in 1973, and accounted for 31% of total Soviet
foreign trade. A cutback in agricultural imports from the West was in part
responsible for the lower rate; at the same time, increases in world prices of several
commodities, particularly oil, provided the Soviets with a substantial windfall gain
in hard currency earnings and sharply improved the USSR's terms of trade with
the West.
34. Trade with Communist countries grew by only 14%, resulting in a further
decline in their share of Soviet trade. This is explained in part by fixed prices
in CEMA trade rather than by a reduction in volume. Trade with Eastern Europe
14
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USSR: Foreign Trade,by Major Area
Exports plus Imports
Billion US$
$42.3
$31.5
$11.2
$16.2
$52.3
Other
Communist
Eastern
Europe
Less
Developed
Countries
Developed
West
is estimated at about $24 billion and is likely to have been in deficit by about
$300 million. This compares with deficits of about $1 billion per year in 1972
and 1973, which resulted primarily from large increases in Soviet purchases of
machinery and equipment and consumer goods and reduced Soviet grain sales to
Eastern Europe.
35.. The improvement in the USSR's terms of trade with the West in 1974
and the cutback in grain imports combined to produce a hard currency trade surplus
estimated at about $1 billion (see Figure 5). Despite its greatly strengthened
financial position, the USSR continued to sell gold during the year to take advantage
of high prices. Moscow also continued to seek low-interest credits from the West
to finance imports. For example, roughly $3.75 billion in credits were extended
by France and Japan in 1974 in support of contracts negotiated that year and
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USSR: Hard Currency Merchandise Trade
r-- Billion Current US $ Figure 5
73 74
estimated
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for planned Soviet development projects. Although continued drawdowns on
Western credits increased Soviet indebtedness to $4.2 billion in 1974, the debt
burden actually eased because of greater exports. Debt service payments of about
$1 billion represented only 15% of its hard currency exports in 1974, down from
17% in 1973.
36. Western equipment and technology is a growing element in the Soviet
scheme to upgrade its industry. In 1974, the USSR ordered a record volume of
Western machinery and equipment (see Table 9), in addition to placing about
$2.5 billion in orders for large-diameter pipe for oil and gas pipelines. Soviet
machinery orders from the West totaled $4.1 billion in 1974 - a 78% rise over
1973.
? Contracts for mining and construction equipment skyrocketed to $765
million - 38 times the 1973 level; this boom largely reflected orders
in support of the construction of the Baikal to Amur railroad (BAM)
(bulldozers, tractors, and heavy duty trucks) and the development of
Yakutsk coal reserves.
? Equipment for the chemical industry - a chronically weak area of Soviet
machine building - more than doubled to $1.1 billion, including orders
for 12 ammonia plants (valued at $675 million) for various fertilizer
complexes in the USSR.
? Orders for metallurgical equipment and the motor vehicle industry
declined, partly a reflection of delays at the Kama Truck Plant.
37. The Japanese are particularly active in helping develop Siberian resources.
In 1974, credits worth more than $1 billion were extended to develop Yakutsk
coal, Sakhalin offshore oil, and Siberian timber. Joint qS-Japanese participation
in the multi-billion dollar Yakutsk LNG project is now in jeopardy, however,
because of restrictions on US Eximbank lending to the USSR. Soviet relations
continue to develop favorably with West Germany, Moscow's leading Western
trading partner. In 1974, agreement was reached on the joint development of a
$1 billion metallurgical complex at Kursk and on increased Soviet deliveries of
natural gas in exchange for West German steel pipe. In addition, negotiations
continue to move forward on the possible West German construction of a nuclear
powerplant in the USSR and on other cooperation projects. In December 1974,
France extended a long-term, low-interest line of credit worth some $2.8 billion
to promote its exports to the USSR over the next few years. This credit line
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Table 9
USSR: Machinery and Equipment Orders from Western Countries, by Typel
Million US $
Total
1,575
2,285
4,070
Chemical
250
440
1,100
Mining and construction
70
20
765
Petroleum and gas, refining
and pipeline2
235
225
5'.~0
Motor vehicle manufacturing
270
620
335
Ships, marine, and port
100
95
280
Textiles
45
45
175
Electronics
55
30
145
Timber and wood processing
110
130
110
Metallurgical and metalworking
55
335
105
Consumer goods manufacturing
85
180
90
Food processing
10
25
'75
Other
290
140
380
I. Excluding Finland, which maintains a clearing agreement with the USSR.
2. Excludes large-diameter steel pipe.
will help finance French participation in a $1 billion aluminum complex for which
a preliminary agreement was signed in December. Following the French lead, i:he
United Kingdom extended a $2.3 billion credit line to the USSR in February 1975
in an effort to win out in competition for Soviet orders.
38. The Soviet trade deficit with the United States dropped from nearly
$1 billion in 1973 to one-fourth of a billion dollars in 1974. US exports to the
USSR were almost one-half the 1973 level. Grain exports fell by two-thirds and
machinery and equipment exports remained at the .previous year's level because
of a slippage in delivery schedules for motor vehicle manufacturing equipment.
Soviet exports to the United States were almost 60% higher than in 1973, largely
because of increased deliveries of platinum group metals, oil products, nickel, and
titanium.
Plans and Prospects
39. The Soviet economic plan for 1975 projects a rebound in growth without
new initiatives or changed priorities (see Table 10). Highlights will be:
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? Industrial growth nearly matching last year's excellent pace.
? A sharp recovery - from -3.3% in 1974 to 10.8% in 1975 - in
agricultural growth.
? A boost in consumer welfare, primarily in the form of larger amounts
of high-quality foodstuffs, automobiles, and other consumer durables.
? Rapid growth in capital investment with continued emphasis on
completion of projects already begun.
e Further expansion of trade with the West and another large hard currency
surplus in 1974.
USSR: Growth of GNP, by Sector of Origin
Percent
Preliminary
19741
1975
Plan2
GNP
3.2
7.0
Civilian industry
6.8
6.7
Construction
5.0
6.5
Agriculture
-3.3
10.8
Transportation and
communicatons
6.6
7.0
Domestic trade
5.9
7.2
Services
3.7
4.4
1. Estimated, at factor costs.
2. Based on Soviet plans for individual sectors.
Industry
40. The Soviets gave fewer details than usual about the 1975 plan. The plans
for industry seem ambitious since growth is expected nearly to match the high
rate achieved last year. Output from new capacity - emphasizing equipment rather
than construction - is probably expected to be a key factor in maintaining growth.
41. The 1975 plans for the fuels and power branch were among the few
revealed and probably suggest the tautness of the overall industrial plan. The goal
for crude oil output - about 490 million tons -- can be reached only if:
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production in old oil fields can be maintained, primarily by the use of
US submersible pumps;
? output in West Siberia can be raised 30 million tons from the 116 million
tons of 1974; and
., pipelines under construction can be completed to move Siberian oil to
consuming centers in the European regions.
The goal for natural gas - more than 285 billion cubic meters - can be achieved
only if pipeline construction schedules are speeded up and more compressor stations
added to increase capacity of exiisting lines. The goal for electric power may not be
achieved, because of the lag in installing new capacity.
Agriculture
42. Attainment of the 11% agricultural goal requires good weather during
the growing and harvesting seasons. So far this year the weather has been favorable
for winter grains, which usually supply one-third of total Soviet grain output.
Because winterkill probably will be far less than usual, a record winter grain harvest
is possible as of early March. Moreover, the past record shows that good winter
crops are usually followed by bumper spring crops. If these conditions hold true,
the Soviet grain harvest will exceed domestic and export requirements, estimated
at 210 million tons. This would not preclude the importation of specific types
of grain, such as high-quality milling wheat and corn, when prices are attractive.
One large grain exporter who has close Soviet contacts believes that the USSR
will "normally" buy 4-6 million tons of corn and "periodically" buy 1-3 million
tons of wheat, barring serious crop shortfalls.
Consumer Welfare
43. The leadership's admission of its inability to fulfill promises to the
consumer for 1975 has been widely interpreted in the West as a switch in the
priorities of the original 1971-75 five-year plan. That plan, in unprecedented
fashion, called for Group "B" industry (largely consumer goods) to grow at a higher
rate than Group "A" industry (largely producer goods) for the period as a whole
and for each year except 1972.2 So far, however, Group B has grown faster than
2. Even so, by Soviet calculations the share of consumer goods in total industrial output by 1975 would
have risen to only 26.9%, compared with 26.6% in 1970.
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Group A only in 1971, and the revised 1975 plan schedules a growth rate of
6% for Group B and 7% for Group A. The crucial question is whether this change
represents a deliberate policy to downgrade the consumer or whether it is the
result of events beyond the control of the leadership.
44. First, when discussing resource allocation as it affects economic growth,
the traditional A versus B argument draws an artificial and misleading line.
Group B, while including mostly products of final consumer demand, is not the
only sector that serves the consumer. Group A as the sector producing machinery
and other investment goods and industrial materials ultimately determines how
many consumer goods can be produced. Thus the key question is really what kinds
of heavy industry are being emphasized - e.g., for the output of weapons or
agricultural chemicals - rather than if heavy is being favored over light.
45. The weight of available evidence seems to support the thesis that the
consumer is still high on the list of priorities.
? A larger supply of high-quality foods was an important plank in the
consumer program. We find no evidence of declining support for the
agricultural sector. Total agricultural investment will increase by 9.2%
in 1975 and will constitute a record percentage, 27.4%, of total
investment. Industrial deliveries to the farms are scheduled to continue
to increase at a fast pace.
? Machinery branches that supply equipment for the agricultural sector and
for light and food industries were among the fastest growers in 1974
and should continue to expand briskly in 1975.
? The leadership continues to stress the importance of the production of
consumer goods by heavy industrial branches.
46. In December, Gosplan Chairman Baybakov rightly attributed the shortfall
in consumer goals largely to "harvest shortages" of 1972 and 1974 and "the
incomplete fulfillment of tasks related to the commissioning of capacities." The
recognition that the flow of agricultural raw materials to Group B enterprises will
fall is reason enough for reversing the rates planned for A and B in 1975 as was
done in 1973 following the poor 1972 harvest. Lags in construction, while
contributing to the problems of the consumer industry, hardly signify a policy
change; the problem of completing investment projects pervades the Soviet
economy.
21
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Capital Investment
47. Total new fixed investment is planned to increase by 7.3% in 1975,
compared with 7.2% last year. As in 1974, 70% of all centralized investment is
to be concentrated in projects nearing completion, with major new capacity planned
for industries producing fuels and power, ferrous metals, and mineral fertilizer.
Foreign Trade
48. In 1975, the USSR plans to expand trade with the West in order to
procure needed capital equipment and technology. Moscow will probably enjoy
another sizable hard currency surplus, perhaps on the order of the $1 billion
probably earned in 1974, although the terms of trade may worsen slightly for
the USSR. Hard currency exports should again rise substantially because of higher
volumes of energy exports, which will more than offset any decline in exports
of other raw materials. If prices remain near $10 per barrel, oil exports alone
may earn $3.7 billion in 1975. Increased deliveries of natural gas, along with other
raw materials exports, could increase total Soviet hard currency earnings by some
$2 billion to about $9 billion in 1975. Gold sales are an additional large source
of potential foreign exchange earnings. If the USSR markets all of its current gold
production in Western countries, it would earn -- at $175 per troy ounce -- more
than $1 billion in 1975. The uncertainties surrounding Soviet agriculture could
upset Soviet foreign trade plans if the USSR had to import large quantities of
grain, sugar, or other agricultural products. With its new financial cushion, however,
the Kremlin can more easily adjust to these contingencies.
49. The favorable hard currency position will strengthen Soviet bargaining
power in the international arena over the next few years. Moscow can now
(a) afford to pay cash as it agreed to do recently for $800 million worth of West
German equipment for the Kursk steel complex and for International Harvester
crawler tractors worth $100 million; (b) resist high interest rates and bargain hard
on other commercial terms; and (c) consider postponing exports of some
commodities such as diamonds that probably will bring higher prices in the future.
50. The decision of the USSR not to implement the 1972 US-Soviet trade
agreement will have little impact in 1975 on trade with and technology transfer
from the United States. In the long term, US-Soviet economic relations will be
affected by the state of political relations. The USSR can find most of what it
wants, including high-technology products, in Western Europe and Japan, but the
United States remains the most attractive source for many goods, particularly for
advanced oil field, electronics, and computer equipment.
22
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Meeting the 1971-75 Plan
51. Few major goals for 1971-75 will be met (see Table 11). Moscow has
published only scanty details of the revised 1975 goals; the Soviets expect to meet
or exceed the original goals only for coal production, mineral fertilizer output,
and agricultural investment.
USSR: Original and Scaled-Down Plans for 1975
National income (percent over 1970)
Original Five-
Year Plan
39
New 1975 Plan
32
Industrial production (percent over 1970)
47
42
Electric power (billion kilowatt-hours)
1,065
1,035
Oil (million tons)
505
489
Natural gas (billion cubic meters)
320
More than 285
Coal (million tons)
695
700
Crude steel (million tons)
146
142
Mineral fertilizer (million tons)
90
90
Cement (million tons)
125
122
Textiles (billion square meters)
11
10
Machine building (billion rubles)
145.7
139
Agricultural production (percent over 1970)
23
20.1
Capital investment, 1971-75
Total economy (billion rubles)
501
498
Agriculture (billion rubles)
129
130
Housing (million square meters)
580
543
Average monthly wage (rubles)
Workers and employees
149
144
Kolkhoz workers
98
More than 96
Per capita real income (percent over 1970)
31
24
Labor productivity (percent over 1970)
Industry
39
33
Agriculture
37-40
22
52. Within the industrial sector, conditions at the end of 1974 furnish some
idea of prospects for five-year plan fulfillment (see Table 12). Even though many
items are within striking distance of the plan, some of the biggest laggards are
items essential for future growth. These include many kinds of machinery such
as oil and chemical equipment.
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USSR: Five-year Industrial Plan Fulfillment by the End of 1974
Ahead of Plan Even with Plan
Sector (By more than 2.5%) (Within 2.5%)
Fuels and power Coal (2.8%) Electric power (0.3%)
Oil (-1.1%)
Metals Pig iron (-0.8%)
Crude steel (-0.1 %)
Steel pipe (-1.6%)
Finished rolled
steel (-0.9%)
Mineral fertilizer
(0.6%)
Plastics and synthetic
resins (-1.0%)
Chemical fibers (-0.5%)
Soda ash (-1.4%)
Tires (-0.1%)
Machinery Computers (27.6%) Metalcutting machine
Bulldozers (10.8%) tools (-0.4%)
Buses (-1.5%)
Tractors (-0.6%)
Agricultural
machinery (1.3%)
Television sets (2.0%)
Watches and clocks
(-0.3%)
Forest products Paper (-0.1%)
and paper Furniture (-0.6%)
Construction Cement (0.4%)
materials Slate (1.9%)
Light industry Cotton fabric (10.2%)
Silk fabric (2.6%)
Behind Plan
(By more than 2.5%)
Natural gas (-4.0%)
Caustic soda (-4.4%)
Turbines (-16.2%)
Generators (-12.4%)
Chemical equipment (-23.09o')
Oil equipment (-19.4%)
Forge-press machines (-3.3%)
Instruments and spare
parts (-25.3%)
Motor vehicles (-3.5%)
Passenger cars (-3.7%)
Trucks (-3.4%)
Grain combines (-12.1 %)
Excavators (-3.9%)
Light industry equipment
(-13.8%)
Food industry equipment
(-6.4%)
Radios (-8.9%)
Refrigerators (-6.0%)
Cardboard (-11.3%)
Soft roofing (-3.2%)
Textiles (-3.7%)
Linen fabric (-2.6%)
Wool fabric (-23.8%)
Knitwear (-10.8%)
Sewn goods (-5.2%)
Leather footwear (-10.3%)
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53. Aside from poor harvests and capital construction problems, overly
ambitious productivity goals contributed heavily to underfulfillment of the plan.
The gains in output planned for 1971-75 depended much more on growth in
productivity than on growth in capital and labor. The attainment of such
productivity growth almost certainly required the adoption of bold new strategies
for the introduction of new technology and for raising the efficiency of investment
in industry and agriculture. No such strategies were forthcoming in 1974. A scheme
to reorganize industry by combining some production and R&D units under unified
management -- production associations - is to be completed by 1975, but progress
is slow and opposition to the reform is wide-ranging.
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