USSR REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89T00992R000100180001-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 70
• Document Creation Date: December 27, 2016
• Document Release Date: March 19, 2013
• Sequence Number: 1
• Publication Date: August 1, 1988
• Content Type: REPORT

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USSR Review
Secret
SOV UR 88-009X
August 1988
Copy lJ `1 5
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Intelligence
USSR Review
The USSR Review is published by the Office of
Soviet Analysis.
Secret
SOV UR 88-009X
August 1988
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Contents
Articles Measuring Gorbachev's Success at the Party Conference:
A Comparison of the Theses, Opening Report, and Resolutions
An issue-by-issue comparison of the key conference documents
reveals that the conference approved nearly all of the political and
economic reform proposals Gorbachev advanced before and during
the conference. Gorbachev's success was tempered, however, by the
conference's failure to explicitly endorse controversial proposals,
such as expanding the power of the state President and ensuring
multicandidate party elections. This comparison, in matrix form,
can be used as a tool to assess the extent to which the conference ad-
vanced Gorbachev's proposals as well as a quick reference to the
main documents.
Page
Although no major economic initiatives were revealed at last
month's party conference, the "theses," speeches, and final resolu-
tions yielded some important clues about the general shape of future
economic policy.
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SOV UR 88-009X
August 1988
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Soviet Approaches to Persian Gulf States
The Kremlin's efforts under General Secretary Gorbachev to en-
hance its relations with the Gulf Arab states are likely to bring some
successes over the next few years, possibly even the establishment of
diplomatic relations with Bahrain and the resumption of relations
with Saudi Arabia. Moscow uses various methods including ex-
changes of Islamic delegations and visits by trade and cultural
delegations to bridge gaps in its relationships with the Gulf states
and to demonstrate that the USSR is both reasonable and reliable.
The Soviets' ability, however, to translate their diplomatic gains into
significant, lasting influence will continue to be limited by factors
such as Moscow's courting of Iran and lingering Gulf Arab
suspicions of Soviet intentions.
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The Soviet Navy in the Mediterranean: Gorbachev's Actions Belie 21
His Words
A decline in Soviet ship strength in the Mediterranean over the past
two years would seem, on the surface, to underline the sincerity of
General Secretary Gorbachev's Mediterranean proposal calling for
a freeze on Soviet and United States naval forces in the Mediterra-
nean. The proposal, however, appears to be little more than a
repackaging of past Soviet gambits, and the decline in ship strength
is best explained as a step to conserve resources. At the same time,
Gorbachev has sought to gain greater access for the Soviet Navy's
use of port facilities in Syria, Egypt, and Libya and is likely to cite
negative US reaction to his recent proposal to justify this naval
presence.
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Mongolia: Winds of Change
The Soviets seem to be making a concerted effort to convince
interested third parties that they are willing to loosen their grip on
Mongolia. They have withdrawn part of their forces from Mongolia,
encouraged Ulaanbaatar to improve ties to Beijing, and even
allowed the Mongolians to establish relations with the United
States, after having vetoed any movement in that direction in the
past. We probably will see further moves in the next year or so-
such as additional troop cuts in Mongolia, or the resumption of Sino-
Mongolian party ties. We also expect the Soviets to intensify their
pressure on Mongolia to put its economic house in order, thus
encouraging the Batmonh regime to get on the glasnost and
perestroyka bandwagon.
Soviet Azerbaijan: "Youth Bulge" Sets Stage for Unrest
Rapid growth of Azerbaijan's young adult population has out-
stripped the republic's ability to provide jobs, housing, and educa-
tional opportunities. As a result, competition for economic opportu-
nities has increased, exacerbating tensions between Azeris and the
republic's principal ethnic minority, Armenians. This probably
contributed to the recent unrest in the Caucasus that was sparked by
the demand that the Nagorno-Karabakh Autonomous Oblast-
which has a predominantly Armenian population-be taken from
Azerbaijan's jurisdiction and reunited with Armenia.
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USSR: Sharply Higher Budget Deficits Threaten Perestroyka 37 25X1
General Secretary Gorbachev acknowledged in his opening speech
to the June party conference that the state budget has been in deficit
for many years. We estimate the deficit has risen rapidly since
Gorbachev came to power as government spending has surged while
tax revenues have remained almost unchanged. Delay in bringing
the deficit down could lead to inflation much worse than the Soviets
have experienced in the postwar era
Factories and ministries are being told to reduce their staffs and "do
more work with fewer workers," as part of Gorbachev's drive for
industrial efficiency and more effective management. Although
layoffs have not yet generated a significant increase in Soviet
unemployment, some workers who have been released are having
trouble finding new jobs, and the possibility of unemployment is
producing anxiety in the work force. If Moscow presses the "labor-
saving" campaign, some workers will have to accept less attractive
jobs or move to less desirable regions, and others may fall into the
ranks of the chronically unemployed.
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Last month's debate in the Presidium of the Council of Ministers
revealed sharp differences over Gorbachev's effort to reduce manda-
tory output targets for Soviet enterprises in the last two years of the
current five-year plan. It also highlighted some of the larger
problems engendered by the incremental implementation of his
reforms.
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Easing the Antialcohol Program: New Wine in Old Bottles) 49 25X1
production where retooling has been slower.
Recent reports indicate that the Soviets have begun to ease up on
the antialcohol campaign introduced by Gorbachev in 1985. The
regime evidently intends to allow small increases in production of
vodka and somewhat larger increases in production of light alcoholic
beverages. Light alcoholic beverages remain in short supply, howev-
er, because many former wineries and breweries are now producing
other goods. The greatest surge may occur in vodka and liquor
Dissent
Soviet Attitudes Toward East German Repression of Domestic
Financial Woes of Ferrous Metallurgy Enterprises
Ministry of Railways Shifts Blame for High Accident Rate
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The Soviet Party Conference in Gorbachev's Political Strategy ~~59
lacks the power to remove him.
General Secretary Gorbachev conceived the 19th All-Union Party
Conference as part of his plan to rearrange political power in the
USSR, in which he would reduce the strength of the party apparatus
and the economic ministries and shift the focus of policymaking
authority away from the Politburo and into a new Presidential office
that he planned to occupy. Despite his success in winning approval
for a number of radical reforms, Gorbachev continues to be opposed
by a strong faction headed by Yegor Ligachev, who enjoys support
in the regional party apparatus. A clash between Gorbachev and this
opposition faction could be clearly seen at the conference, but the
two sides remain in a political standoff-Ligachev remains content
to obstruct Gorbachev's programs, while Gorbachev apparently
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Articles
Measuring Gorbachev's Success at
the Party Conference: A Comparison
of the Theses, Opening Report,
and Resolutions
The six final party conference resolutions-on re-
forming the political system, deepening restructuring,
fighting bureaucracy, interethnic relations, glasnost,
and legal reform-were not as radical as some re-
formers may have hoped, but they probably more
than met General Secretary Gorbachev's expecta-
tions. Gorbachev also managed to get final-day ap-
proval of a special seventh resolution setting a sched-
ule for implementing many of the changes.
The delegates approved the most significant proposals
contained in the Theses; they also endorsed some
particularly controversial ideas raised for the first
time in Gorbachev's opening report. For instance, the
conference approved Gorbachev's proposal to restruc-
ture the Supreme Soviet and affirmed the notion that
party first secretaries up and down the line-implicit-
ly including the General Secretary-should chair
their corresponding soviets. On the other hand, while
the resolution explicitly endorsed in general terms
"the proposals for the reform of the political system
set out in M. S. Gorbachev's report," they omitted
any reference to some important specifics of his
program-such as significantly enhancing the powers
of the state President and certifying party members
before the next Party Congress. Despite the fact that
the glasnost policy came in for some heavy criticism
by conservative delegates during the course of the
debates, it received stronger support in the resolution
than it did in either the theses or the report, possibly
attesting to the influence of drafting commission
chairman Aleksandr Yakovlev. In the foreign policy
area, the resolution backed ofI' from statements found
in the other documents; it did not blame the "milita-
rist imperialists" for drawing the USSR into the arms
race, nor did it advocate removing Soviet troops and
bases from foreign territories.
Some comments on the structure of the following
matrix should facilitate its use as a quick reference to
the conference documents. The structure of the ma-
trix essentially parallels the structure of the resolu-
tions; that is, the points follow the order in which they
appear in the resolutions. Moreover, since the resolu-
tions are the documents of reference, "similar
language" in the "Theses" column, for example,
indicates the language in the theses is similar to that
in the resolution.
Secret
SOV UR 88-009X
August l 988
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Party Conference Resolutions
Political Reform Resolution
(Commission chaired by Mikhail S. Gorbachev)
The state and Favors strengthening legislative, Similar language
government administrative, and monitoring
functions of soviets and giving
them access to a steady source of
income in the form of taxes from
enterprises in their territories and
from the local population
Calls for periodic release of depu- Similar language Suggest deputies would work full
ties from their jobs to work full time for duration of term on soviet
time in soviets
Advocates establishing permanent Similar language Do not mention election of chair-
presidiums of soviets, whose chair- man
men will be elected by secret ballot
Recommends, as a rule, that party Similar language, but invites de- Not mentioned
first secretaries chair their come- bate on whether posts should be
sponding soviets combined at the highest level
Endorses nomination of several Similar language
candidates, secret ballots, and com-
petition when forming ispolkoms
(executive committees) chosen by
soviets
States members of ispolkoms and Similar language
important staffers, judges, arbiters,
and prosecutors cannot be deputies
of corresponding soviets (inter alia,
this means party first secretaries
will not be in the ispolkom)
Limits state officials in elected and Suggests a third term for the high- Suggest [he possibility of third
appointed posts to two consecutive est tier term under certain circumstances
five-year terms
Calls for unrestricted nomination Similar language, but only men- Do not propose multicandidate
of candidate deputies, broad dis- lions "competitive selection of elections and call only for the free
cussion of candidates, more candi- candidates" nomination and wide discussion of
dates than seats, and extensive candidates
powers to preelection meetings that
select candidates
Advocates the creation of a Con- Similar language Call only for enhancing role of the
gress of People's Deputies consist- Supreme Soviet
ing of deputies from territorial and
national territorial districts and
representatives from trade unions,
Komsomol, and other public orga-
nizations to meet annually
Suggests creating a small two- Similar language, but suggests it Not mentioned
chamber Supreme Soviet, which consist of 400-450 deputies
will function permanently as a
standing legislature, elected by the
Congress of People's Deputies ev-
ery five years
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Party Conference Resolutions (continued)
Political Reform Resolution
(Conrnti.rsron chaired by Mikhail S. Gorbachev)
Endorses electing a Supreme Soviet
chairman by secret ballot
Favors increasing role and respon-
sibility of Council of Ministers
Calls for elimination of superfluous
components of entire government
apparatus and reducing its
personnel
Calls for the creation of a uniform
system of public and state supervi-
sion, subordinate to elected organs
The public Ensures civil rights and liberties
and calls for legislation to protect
constitutional rights-such as free-
dom of opinion, inviolability of the
home, correspondence, and
telephone
Calls for legislation to protect
"freedom of belief'
Does not mention role of human
rights under socialism
Favors enhancing independence
and responsibility of public organi-
zations, (for example, Komsomol,
trade unions) as long as they assist
the cause of socialist renovation;
makes no reference to informal
groups
The party Reaffirms the party's leading role
in society and recalls the historical
basis of the one-party system (pre-
sumably rejecting the creation of
opposition parties)
Describes as the party's paramount
task the full restoration of Lenin's
understanding of democratic cen-
tralism, providing for freedom of
debate at the discussion stage and
unity of action once decisions have
been adopted
Similar language, but elaborates on Not mentioned
the Chairman's responsibilities, in-
cluding drafting important laws,
deciding key foreign policy issues,
heading the Defense Council, and
proposing candidates for Premier;
the Chairman would also head Su-
preme Soviet Presidium
Similar language, but also call for
protecting the freedom of assembly
and to hold rallies, street proces-
sions, and demonstrations
Calls for respect toward religious Not mentioned
believers, and asserts all believers
are USSR citizens with full rights
States that human rights are an Not mentioned
inalienable characteristic of social-
ism and that the party intends to
enrich the rights of the individual
`bn socialist soil"
Call fora "legal basis" for activi-
ties of "self-motivated associa-
tions," presumably including infor-
mal groups
Similar language, and rejects use of Similar language
democratic rights for antidemocra-
tic ends-such as creating opposi-
tion parties
Similar language, and also recalls Similar language and also recall
Lenin's opposition to party officials Lenin's tolerance for diversity of
who condemned others for thinking views
differently
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Party Conference Resolutions (continued)
Political Reform Resolution
(Commission chaired by Mikhail S. Gorbachev)
Demands the party not substitute Similar language
itself for state and economic organs
nor issue directinstruc[ions to the
state
Demands putting an end to replen- Similar language
fishing party ranks by a quota sys-
tem and suggests collective opinion
should be involved in discussions of
party admissions
Forbids the party apparatus from Similar language
supplanting the full party commit-
tees and favors enhancing the work
of party meetings and plenums
Favors broader participation of the Similar language
Central Committee in Politburo
work and setting up commissions in
the Central Committee dealing
with areas of major importance in
foreign and domestic policy
Suggest the Central Committee
should be more involved in discus-
sions of the party line and ask for
new forms of work between ple-
nums, but do not mention creating
commissions
Supports publishing stenographic Not mentioned explicitly but re- Not mentioned explicitly but call
record of party plenums and draft jects secrecy in party work and for wide information on matters of
resolutions unjustified suppression of domestic and foreign policy
information
States the nomenk(atura is becom-
ing obsolete and recommends cadre
training, education as criteria for
selection, and adds that elections
should determine cadre questions
Endorses secret ballot elections of
party committee members and sec-
retaries through the Central Com-
mittee, including the possibility of
allowing a greater number of can-
didates than seats; favors allowing
party organizations to nominate
candidates to superior committees
Advocates two consecutive five-
year terms from the raykom
through Central Committee levels,
including all bureau members, sec-
retaries, the Politburo, and [he
General Secretary
Favors creating a single control and Similar language
audit organ to be elected at con-
gresses and conferences to replace
the current party control and audit
committees
Mentions the necessity of training, Describe as outdated the party's
but only indirectly criticizes the formal approach to selection and
nomenklatura distribution of cadres
Similar language, but fully en- State that Communists have a
dorses the right to nominate more right to nominate more candidates
candidates than seats through the than seats, but does not mention
Central Committee level role of lower party organizations in
the nomination process
Raises possibility of a third term Do not explicitly mention the Polit-
for the highest tier burn and General Secretary and
raise the possibility of a third term
in some cases
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Party Conference Resolutions (continued)
Political Reform Resolution
(Cornniission chaired by Mikhail S. Gorbachev)
Favors reorganizing and reducing
the party apparat in [he very near
future
Rejects the present structure of the
Central Committee and subordi-
nate party bodies-right across
branches of administration, and
calls for a restructuring and a re-
duction of the apparatus
Mention need to introduce the
"necessary structural changes" to
the party
Suggests holding a party confer-
ence every two to three years with
powers to change up to 20 percent
of the Central Committee
Does not mention certification of
party members
Does not mention mandatory
retirement
Raise the possibility of partially
renewing the Central Committee
between congresses
Suggests certification at open party Suggest expediting certification of
meetings party ranks before the next
Congress
Mentions proposal to restrict ten-
ure of elected ofi'ices to a certain
age, but rejects it
Resolution on Restructuring
(Conrniission chaired by Mikhail S. Gorbachev)
Calls for the completion of radical
economic reform within current
five-year plan
Supports course aimed at trans-
forming functions and work style of
ministries and other central depart-
ments, eliminating superfluous
components and transferring their
rights to localities
Calls for urgent measures to im-
prove transportation, processing,
storage of agricultural goods; satu-
rating the market with consumer
goods; and drastically increasing
the volume and pace of housing
construction
Calls for price reform after nation- Similar language
wide discussion and assures that
living standards will be protected
Endorses a strong youth policy and Suggests a CPSU CC plenum on
the restoration of the Komsomol's youth
autonomy
Favors strengthening collaboration
with socialist countries, pursuing a
"common European home," and
enhancing the prestige of the Unit-
ed Nations
Similar language, but also advo-
cates removal of troops and bases
from foreign territories and reduc-
ing arms levels to strengthen
security
Criticize a number of ministries,
departments, and economic organs
for stalling economic reform but do
not suggest eliminating components
Favor the restructuring of the
Komsomol
Similar language, but also supports
the ideas of defense sufficiency, the
doctrine of nonaggression, remov-
ing forces and bases from foreign
territories, and strengthening na-
tional and regional security by re-
ducing arms levels
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Party Conference Resolutions (continued)
Resolution on Restructuring
(Commission chaired by Mikhail S. Gorbachev)
Does not mention the decisionmak-
ing process that led the USSR into
Afghanistan
Approves decision to withdraw
from Afghanistan on the basis of
the Geneva agreement
Endorses settling regional conflicts
on the basis of national reconcilia-
tion and freedom of choice
Endorses the continued improve-
ment of Soviet-US relations and
the removal of the threat of war
through constructive dialogue and
disarmament
Advocates releasing resources for
peaceful building and for restruc-
turing and states that all defense
building must be geared toward
qualitative measures in accordance
with Soviet defense doctrine
Does not mention the origin of
arms race or the continued threat
of war
Does not mention continued threat
of imperialist militarism
Does not mention the creation of a
new body to discuss international
issues
Recalls that important decisions Do not comment on the decision-
were made by a narrow circle that making process
led to inadequate reactions to inter-
national events and erroneous
decisions
Describes the withdrawal from Af- Similar language
ghanistan as a landmark among
political settlements of regional
conflicts
Strongly advocates the concept of Not mentioned
free choice, stating that the imposi-
tion of a social system, way of life
or policy, particularly by military
means, is dangerous and puts ones-
self in opposition to the objective
course of history
Notes the improvement of Soviet- Similar language, but also attribute
US relations, exemplified by suc- the turn toward eliminating the nu-
cess of the Washington and Mos- clear threat to summitry
cow summits
Similar language, but adds that State that the militarist danger in-
"new objective factors" determine hereof in imperialism determines
defense development defense building-which now must
focus on qualitative improvements
to hardware and personnel
Blames past reliance on military State USSR was drawn into arms
rather than political means to con- race because it sought military par-
front imperialism for drawing the ity and did not exploit political
Soviet Union into the arms race opportunities to secure the state
Recalls the threat to peace from Tie the threat of imperialism to
imperialist militarism and states defense building
there are no guarantees that the
current positive processes are
irreversible
Calls for creation of an effective Not mentioned
mechanism with full constitutional
powers for businesslike, qualified
discussion of international political
issues
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Party Conference Resolutions (continued)
Anti-Bureaucracy Resolution
(Connnis.rion chaired by Yegor K. LigachevJ
Recommends assessing measures to Similar language
restructure management and re-
duce its links and apparatus
Calls for transferring more man- Does not mention the possibility of Do not suggest methods to solve
agement functions downward, sim- referendums socioeconomic problems
plifying administrative procedures,
and reducing statistical reporting;
and suggests major economic and
social problems be solved with ben-
efit of expert assessments and na-
tionwide discussion or referendums
States the function and responsibil- Similar language
ity of every management compo-
nent should be clearly defined
Calls for making state and public Not mentioned
institutions and party committees
less forbidding to working people
by eliminating formalism and
redtape
States it is necessary to ensure that Similar language
selection and placement of cadres
take place openly on a competitive
basis
Recommends including in laws cur- Not mentioned
rently being drafted provisions re-
garding stepping up the struggle
against bureaucracy
Interethnic Relations Resolution
(Conrmi.rsion chaired by Nikoiay I. RvzhkovJ
Favors expanding rights of repub- Asks conference only for reliable Do not call for an adjustment to
lies and autonomous units through guidelines for relations between na- local budget authority
decentralization, transferring a tionalities in the economic sphere
number of managerial functions to
localities, and enhancing their role
in forming their own budgets
Calls for enhancing role of soviets, Similar language
especially the Soviet of National-
ities, and standing commissions in
dealing with interethnic problems
and suggests forming a special
state body for nationality affairs
Suggests developing legislation Similar language, but does not Not mentioned
governing relations between repub- mention amending constitutions
tics and autonomous units and in-
troducing amendments to USSR
and regional constitutions
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Party Conference Resolutions (continued)
Interethnic Relations Resolution
(Cornn~ission chaired by Nikolay L RyzhkovJ
Favors ensuring nationalities resid- Calls for examining the interests of Similar language
ing outside their state territorial ethnic groups living outside their
formations be given more opportu- ethnic region, noting that an indi-
nities to realize cultural demands, vidual of any nationality has full
that is, education, language, and rights in any area of the country
satisfaction of religious needs
Suggests creating scientific center Calls for the creation of state and Not mentioned
for study of problems on national social institutions to deal with na-
relations tionality problems on a permanent
basis
Supports holding a CPSU CC ple- Similar language Not mentioned
num on nationalities
Alludes to Armenian-Azerbaijani Similar language, and also char- Make no allusion to the current
dispute, stating that any actions tises those who use their democrat- unrest
dividing nations and ethnic groups is rights for antidemocratic ends-
are morally unacceptable and in- such as redrawing borders
imical to state interests, and adding
that any national problems must be
solved within the framework of so-
cialist democracy and legality and
without detriment to international
cohesion
Resolution on Glasnost
(Conrmisslon chaired by A/eksandr N. Yakovlev)
States that glasnost-as an essen- Similar language
tial condition for the expression of
democracy, the implementation of
self-management, and the promo-
tion of peace and cooperation-
must be deepened and supported
States principles of glasnost: the Rejects secrecy and unjustified Stress need for constant and con-
inalienable right of every citizen to suppression of information only in s[ructive political dialogue and for
obtain full information on any issue reference to party work wide dissemination of information
of social life not a state or military on matters of domestic and foreign
secret; the right to open and free policy
discussion of any socially signifi-
cant issue
Envisages enshrining in USSR Does not mention the need for legal Do not mention the need for legal
Constitution a citizen's right to in- and constitutional protection of and constitutional protection of
formation, preparing legislation de- rights to information, but it rejects rights to information, but stress the
fining limits of secrecy, and estab- unjustified suppression of need for wide information on do-
lishing accountability for the information mestic and foreign policy matters
dissemination of state secrets
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secret
Party Conference Resolutions (continued)
Resolution on Glasnost
(Commr.rsion chaired by Aleksandr N. YakovlevJ
Urges party committees to give ex- Rejects secrecy in party work and State that unwarranted secrecy in
tensive written information on their suggests the Politburo should re- party life should be fought
work and to report regularly to port back information about its ac-
party and economic bodies; and tivities to Central Committee
calls for provisions to give commit- plenums
tee members access to sessions,
documents, and data of the bu-
reau-including Politburo-ac-
countable to them
Calls for removal of unwarranted Not mentioned
restrictions on use of statistics on
socioeconomic and political devel-
opment, the creation of a modern
system to disseminate information,
and the establishment of laws on
use of archive material
Requires the media to maintain Similar language
high ideological standards, profes-
sional ethics, objectivity and abso-
lute reliability of information, and
gives each citizen the right to pub-
lish avalid response to criticism in
the press
States it is impermissible to use Similar language
glasnost to harm the interests of
the state or the rights of the indi-
vidual or to express national or
religious intolerance; it is also im-
permissible to manipulate glasnost
Resolution on Legal Reform
(Commission chaired by Andrey A. GromykoJ
Ensures supremacy of the law in all Similar language
spheres of life
Calls for consistent implementation Similar language
of the principle: everything is per-
mitted which is not prohibited by
law
Mentions broadly the need to guar- Similar language
antee implementation of people's
political, economic, social rights,
and freedoms by making substan-
tial changes to laws on property,
economic relations, tax, labor, and
crime
Favors establishing a constitutional Proposes the new committee be Not mentioned
supervisory committee to monitor elected by the Congress of People's
conformity of laws to [he Deputies
Constitution
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~ecrer
Party Conference Resolutions (continued)
Resolution on Legal Reform
(Commission chaired by Audrey A. Gromyko)
Ensures the independence of judges Similar language Similar language, but do not men-
and their subordination to the law tion contempt of court
alone, and recommends criminal recommendation
contempt liability for interference
Recommends rayon through kray Similar language with a suggestion Not mentioned
courts be elected by superior soviets of a 10-year term
for longer terms
Supports enhancing role and num- Similar language
ber of assessors during examination
of complex cases
Extends powers of State Board of Similar language, but includes a Similar language, but make a
Arbitration in protecting rights of broader reference to organs of state broader reference to state
enterprises and cooperatives arbitration arbitration
Enhances responsibilities of procu- Similar language
racy as it monitors uniform appli-
cation of laws
Suggests transferring most crimi- Similar language
nal investigations to investigative
arm of the MVD and constituting
it as an independent structure not
subordinate to republic or local
organs
Favors enhancing role of attorneys Similar language
and improving their training
Calls for improving public legal Similar language on public legal Similar language, but frame avail-
education and availability of legal education ability issue in terms of improved
literature codification
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Economic Policy Issues at
the Party Conference
No major new economic policy initiatives were re-
vealed at the Soviet party conference last month.
Gorbachev made it abundantly clear-by criticizing
one reform economist by name for focusing on eco-
nomic issues-that the primary task of the conference
was political reform, a prerequisite for reforms in all
other areas. Nevertheless, the "Theses," the speeches
of Gorbachev and others, and the final resolutions
yield important clues to the general shape of future
economic policy.
Evidence provided by the conference suggests:
? The economic reform program outlined in June
1987 will be fine-tuned to improve implementation
but no major changes appear to be contemplated.
? There is disagreement over how much progress has
been made thus far but general agreement that the
turning point in economic performance has not yet
been reached.
? There is clear concern about the lack of progress in
improving living standards but little evidence that a
major reallocation of investment resources, beyond
that already announced, is in the cards.
? Acknowledgment by reform economists and Gorba-
chev alike that quality and quantity are difficult
targets to pursue simultaneously may indicate that
the 13th Five-Year Plan (1991-95) goals will be less
ambitious than those of 1986-90.
Economic Reform
A commitment was made to continue the "radical"
reforms "at any cost," and major problems in imple-
mentation were acknowledged. The theses candidly
admitted that the economic reforms "are paralyzed to
a considerable extent" and promised that the party
conference would "profoundly analyze the causes" of
the poor start (many of the reforms began on 1
January 1988). Gorbachev identified three major ob-
stacles-bureaucratic resistance, poor preparation of
economic managers for their new responsibilities, and
the lack of price reform, which is not scheduled to
begin until 1990. The delegates were united in finger-
ing the ministerial bureaucracy as the main culprit,
and some called for its complete elimination. Institute
of Economics Director Leonid Abalkin was one of the
lone dissenters, claiming that "the causes are consid-
erably deeper and more serious than that." In his
view, the root problem is the focus on quantitative
growth targets.
The consensus of the delegates was that the ministries
were able to preserve "the old administrative diktat"
through the new system of compulsory state orders
and normatives, which leaves the enterprise with little
flexibility in determining output or the distribution of
profits. The ministries were identified not only as the
major obstacle to expanding decisionmaking at the
enterprise level but as a potential impediment to
Gorbachev's plan for transferring economic power
from the local party organizations to the soviets. As
one delegate said, "Local soviets will never receive
any real power under any electoral system unless
enterprises are freed from ministries. They won't
obtain it without a fundamental change in the proce-
dure for forming local soviets' budgets." At present,
much of the local infrastructure-housing, cultural
expenditures, roads-is financed by the ministries
that run local enterprises.
Although the speeches and official documents of the
party conference fully acknowledged the numerous
problems, no new solutions were proposed. They
called only for the reduction of state orders, the
accelerated implementation of wholesale trade, and
improvements in the financial and credit system-
revisions which are already reportedly under way. No
indication was given that the price reform issue would
be resolved sooner than originally scheduled despite
Gorbachev's recognition that it is central to the
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JCR C L
reform's successful implementation. In fact, the popu-
lace was again reassured that such reforms would be
thoroughly discussed in public before adoption and
that this would be accomplished "without detriment
to the population's living standards." ' Also, the weak
promise of the anti-bureaucracy resolution that "the
links and apparatus" of the economic bureaucracy
would be reduced was a far cry from the demands of
the delegates that its mission and structure be radical-
ly changed to ensure the shift in economic decision
making toward the local level.
Economic Performance
The theses admitted that "a fundamental break-
through" in economic performance had not been
achieved, mainly because the economic reforms and
the modernization program had not had time to
produce results. At the same time, they were some-
what optimistic, as was Gorbachev, that "positive
changes are taking place" and that "negative trends"
have been halted. The first encouraging results were
reported in the creation of new equipment and tech-
nology, housing, agricultural production, and demo-
graphic trends.
Institute of Economics Director Abalkin directly chal-
lenged this assessment, producing statistics that
showed that growth in national income during 1986-
87 had been at a slower rate than in the "stagnation
years" of the I 1 th Five-Year Plan. Speaking in
alarmist tones, he charged that:
The consumer market situation has deteriorat-
ed, and the situation in the scientific-technical
progress sphere, where we are lagging further
and further behind the world and the lag is
becoming increasingly dangerous, is giving rise
to particular anxiety.
' Nikolay Petrakov, head of the price reform commission, recently
told US Embassy officers in Moscow that retail price reform may
not be in place by 1991 and "may never happen" because of
opposition in the leadership and because it might weaken popular
support for perestroyka. He said that, despite promises that any
price changes would be publicly discussed beforehand, debate on
the issue was so sensitive it might be confined to the party.
Stung by this criticism and also by Abalkin's doubts
about the wisdom of combining the chairmanship of
local party organizations and soviets, Gorbachev ac-
cused Abalkin of "economic determinism" and of not
fully comprehending the significance of political re-
form. Director of the USA and Canada Institute
Georgiy Arbatov also disagreed with Abalkin's asser-
tion that nothing had been achieved in three years and
that the economy had remained in the same stagnant
state. He argued that success should not be measured
by quantitative economic indicators but by the degree
to which the "political, spiritual, and moral prerequi-
sites for economic reform" were being created. The
other delegates seemed to side more with Arbatov
than Abalkin, acknowledging lags in machine build-
ing and the consumer sector in particular but nonethe-
less believing that some forward movement had been
made, laying the groundwork for future gains.
Oddly, the final resolution on restructuring, produced
by a commission chaired by Gorbachev, painted an
almost unrelentingly dismal picture of the economy
that echoed Abalkin's themes: "Scientific and techni-
cal progress is developing slowly, plans for increasing
national income and saving resources are not being
fulfilled. There is no appreciable improvement in
output quality. The country's financial situation re-
mains complex. The food and consumer goods supply
situation remains tight." The official characterization
of past and future growth is not an unimportant issue.
A perception of some forward momentum is probably
essential for the populace's wholehearted commitment
to perestroyka.
Resource Allocation
Of all the resource claimants, the consumer clearly
grabbed center stage at the party conference. The
theses had laid the groundwork, excoriating the "left-
over principle" that had in the past applied to the
allocation of resources to the consumer. An "intoler-
able" failure to meet consumer targets was admitted.
Abalkin scolded that the intent of the 27th Party
Congress to increase the rates of growth in Group B
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industry (consumer goods) over that of Group A
(producer goods) had not occurred. The resolution on
restructuring set the most important task in the
"socioeconomic sphere" as "accelerating the solution
to the urgent problems of the people's prosperity" and
"the prime need" as a substantial improvement in the
food supply. The need to increase investment, even in
the machine-building industry, got unusually short
shrift.
The documents and speeches listed the following
measures, none of which are new, that are being taken
to improve the lot of the consumer:
? Increased resources for housing construction.
? Retooling of light industry.
? Improvements in the transportation, processing,
storage, and sale of agricultural products.
? Better incentives for farms and farmers (reduced
central directives for the farms and collective con-
tracts and leasing for the farmers).
? Improved health care and environmental
conservation.
? Expansion of the private sector.
? Increased support from the defense industries
The Five-Year Plan
The theses stubbornly maintained that fulfilling the
12th Five-Year Plan was feasible. This refusal to
acknowledge any error in setting such ambitious goals
seemed to indicate that the emphasis on quantity
might continue during 1991-95. However, Gorba-
chev's opening speech to the party conference con-
tained his clearest statement to date of the inadvis-
ability of emphasizing quantitative over qualitative
growth:
We still cannot renounce the old approaches.
We do not need simply millions oJtons of steel,
millions oJtons of cement, millions of tons of
coal; we need specific end results. How long
must we go round in a vicious circle of hopeless-
ly obsolete ideas and formulas? Production for
the sake olproduction, and the plan for the
sake of the plan.
Abalkin waxed eloquent on this point also, declaring
that "by continuing to opt for purely quantitative
volume economic growth we are unable to solve the
problem of fundamentally improving output quality,
retooling the national economy, and improving effi-
ciency and cannot turn the economy round toward the
consumer."
There were no hints in the documents or speeches that 25X1
the current five-year plan would be scrapped in favor
of a seven-year plan more amenable to the reform's
emphasis on quality and new technology, which had
been rumored. Both Gorbachev and the final resolu-
tion on restructuring mentioned the 1991-95 plan but
the resolution contained only a vague reference to its
general priorities. Maintaining an evenhanded ap-
proach, it recommended that the plan inextricably
link "the social reorientation of the economy" with a
new quality of economic growth, intensification of
production, resource savings, the acceleration of sci-
entific and technical progress, and the modernization
of machine building. 25X1
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Soviet Approaches
to Persian Gulf States
An adroit use of diplomatic, economic, and military
tools has enabled Moscow to enhance its influence
with conservative Persian Gulf states during the past
three years. Under the leadership of General Secre-
tary Gorbachev, the USSR has established relations
with Oman, the United Arab Emirates (UAE), and,
on 1 August, Qatar. The Kremlin also has gained
acceptance for a Soviet naval presence in the Gulf,
and is conducting an active regional and bilateral
campaign to gain credibility with the Gulf Coopera-
tion Council (GCC) states as a major Persian Gulf
actor. The 21 June meeting between the Soviet Am-
bassador to Kuwait and the Amir of Bahrain and the
attendance of Soviet Muslim delegates at the Third
Islamic conference in Mecca are indicative of the
continuing success of Moscow's efforts to improve ties
to the Gulf states. Gulf Arab leaders now view the
Soviet Union in a more favorable light. Nevertheless,
while Moscow is likely to strengthen contacts and
relations with the GCC states, factors such as the
Kremlin's diplomatic support for Iran and Arab suspi-
cions about Soviet intentions limit possible Soviet
advances in the Gulf (see map).
Soviet Strategy and Goals in the Persian GuIJ'
In the past year, Moscow has continued its efforts to
establish relations with the two Gulf states that do not
have ties to the USSR: Bahrain and Saudi Arabia.'
Similar efforts in Qatar recently paid handsome
dividends. As the dominant member of the GCC and
an important player in the Middle East, Saudi Arabia
is critical to the success of the Soviet diplomatic push.
Moscow has also sought to solidify its ties to Oman
and the UAE, both of which are still uncomfortable
with an expanded Soviet diplomatic and military
presence in the Gulf.
' Neither the Soviets nor the Saudis ever formally severed diplomat-
ic relations when Moscow withdrew its emissary from Saudi Arabia
in the late 1930s. Thus, technically they still have relations, but in
fact [here have been no ties for almost 50 years0
We believe the Soviet leadership reasons that im-
proved ties to the Gulf monarchies could:
? Reduce US influence and naval access in the Gulf.
? Secure US acknowledgement of the USSR's "legiti-
mate" role in the Middle East.
? Aid the Soviet economy by opening new hard
currency markets for Soviet military and nonmili-
tary exports.
? Give the Soviets better access to Gulf banking
centers and Arab credit.
? Increase support for the Soviet call for an interna-
tional conference on the Arab-Israeli conflictl
Methods of Soviet Penetration
To achieve its goals in the Persian Gulf, Moscow uses
various contacts to bridge gaps in its relationships
with the Gulf states and to demonstrate that the
Soviet Union is both reasonable and reliable. Al-
though there is no hard and fast approach, Moscow
seems to prefer initial contacts to be unobtrusive and
low key. As contacts warm, the Soviets increase the
visibility and status of visits. Methods of Soviet
penetration include visits by Soviet media officials 25X1
and placement of propaganda in the local press;
exchanges between Soviet Islamic organizations and
their Gulf Arab counterparts; increased contacts by
visiting trade, cultural, and scientific delegations;
improved trade and arms sales; and official visits by
Soviet diplomats.
Press and Propaganda. Moscow has used its journal-
ists to play on Arab discontent with US policies,
influence local perceptions of the Soviet Union, and
pave the way for official contacts. In late 1986, Igor
Kuznetsov, the Kuwaiti Bureau Chief for Novosti,
visited Doha. Although it was low key and unofficial, 25X1
it nevertheless was the first sanctioned visit by a
Soviet journalist to Qatar and opened the door for
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The Gulf Cooperation Council States
Mena~* ahrain
~tDoha
~
~
Qatar
#~iyaAh ~ Abu Dhabi * Ash.
r~,~:~_~
Saudi Arabia ~ `` -i;n~t~,Areb ~~
Emirates
eou~a.n ~ev~aean~m~on .e
~m naoaana,~iy eumo~u.u~e.
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increasingly frequent visits by Soviet journalists,
which have generated much favorable publicity in
Qatar. According to the US Embassy in Doha, Soviet
media placements have increased significantly in
quantity and prominence in the Qatari press.
In Kuwait, Soviet propaganda reportedly finds fertile
ground among Kuwaitis and Arab expatriates dissat-
isfied with and suspicious of US foreign policy in the
Middle East. Stories and interviews upholding Soviet
support for Arab causes and attacking US policies
allegedly interfering in Arab and Persian Gulf affairs
often appear in the Kuwaiti press. In a recent inter-
view in the Kuwaiti media, the Chief of the Persian
Gulf and Jordan section of the Soviet Foreign Minis-
try predictably promoted Soviet positions and at-
tacked the ability of the United States to solve the
Arab-Israeli conflict. Soviet efforts to woo local press
officials are most apparent in Kuwait. In March a
delegation headed by the director of the Kuwait News
Agency (KUNA) visited Moscow. TASS and KUNA
have signed anews-sharing agreement, and TASS
and Novosti maintain an office in Kuwait, the only
one in the GCC states.
Islamic Contacts. Moscow's anti-Islamic policies in
Central Asia and Afghanistan have been a major
stumblingblock to improved Soviet-Gulf state ties.
Some conservative Gulf leaders have stated that
improvement in the status of Soviet Muslims is a
prerequisite for full normalization of relations.
resumption o re ations provided that the Soviets
complete their withdrawal from Afghanistan and
improve their treatment of Soviet Muslims.
Moscow has used its official Islamic organizations to
promote the credibility of its domestic Islamic poli-
cies. Several Muslim delegates from the Soviet Union
attended the Third Islamic Conference held in Mecca,
10-15 October 1987. In 1986 and 1987 there were
three exchanges between Soviet and UAE Islamic
delegations. At the end of the latest visit to the Soviet
Union, the head of the UAE delegation stated that he
viewed Soviet treatment of Muslims in a favorable
light and that "there can be no doubt that such visits
play an important role in furthering contacts between
our two countries."
Cultural and ScientUic Delegations. The Soviets use
cultural and scientific delegations to accustom the
Gulf states to the Soviet presence and improve the
local image of the Soviet Union. In Qatar, the Soviets
have been pressing for a cultural center and have
offered to educate Qatari students in the USSR. In
1987 the Soviets dispatched a group of health special-
ists to the UAE and staged large exhibits in the
UAE's December Ash Shargah (Sharjah) trade and
book fair. In March 1988, a delegation from the
Soviet Academy of Sciences met with Kuwaiti experts
to discuss cooperation in the field of petroleum devel-
opment. Additionally in March, the Kuwaitis and the
Soviets signed atwo-year cultrual agreement covering
the sciences, art, health, and tourism. The agreement
called for the exchange of delegations as well as for
the exchange of invitations to participate in interna-
tional exhibitions.
Trade. Moscow views trade as a vehicle to open doors
for further diplomatic penetration and, whenever pos-
sible,to generate hard currency.
compared with trade with the West, Moscow wel-
comes the modest gains in trade as steps toward
formalizing or strengthening relations. The promotion
of small-scale economic ventures, regardless of their
profit potential, has significant value for Moscow's
policy of projecting a benign image to conservative
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Arab states that previously shunned the USSR. 25X1
Gulf officials have indicated that they see a growing
potential for trade with the USSR and Eastern
Europe. According to Saudi press reports, Saudi
Arabia has sold over 170,000 tons of grain to the
Soviet Union. Additionally, in April, for the first time
since the establishment of relations, the UAE lent $50
25X1
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JC~:~ Cl
million to the USSR, reportedly at a favorable inter-
est rate. Moreover
QAeroflot landing rights and transit trade with
the USSR were discussed during the April visit of
Soviet Deputy Chairman of the Supreme Soviet,
Georgiy Tarazevich, to Oman.
The Soviets are increasingly targeting private firms to
broaden contacts within the Gulf states and to open
up new markets for hard currency exports. According
to Saudi press, the Soviets have begun selling gold
bullion directly to banks and precious metal dealers in
the Gulf. Additionally, the US Embassy in Riyadh
reports that the Saudi Government does not hinder
local business figures from visiting the Soviet Bloc.
This seems to indicate that GCC leaders are increas-
ingly willing to permit contact between their citizens
and Soviet officials.
Arms Sales. Arms sales generate hard currency,
broaden contacts with local defense sectors, and ex-
pand the Soviet presence by increasing the number of
military advisers and technical personnel in the buy-
ing nation. Recently, the UAE purchased Soviet
SA-14 shoulder-fired antiaircraft missiles, while King
Fahd publicly announced that Riyadh is willing to
buy arms from Communist countries. Kuwait-a
longtime buyer of Soviet military hardware-on 8
July signed a $300 million contract with the USSR
for the delivery of 254 BMP-2 infantry fighting
vehicles and 30 command vehicles. This deal could
substantially expand the Soviet 20-man military advi-
sory group currently in Kuwait. Additionally,
during the first six
months of 1988 the Soviets sent a delegation to
Kuwait offering MIG-29 aircraft and sophisticated
ordinance.
Official Visits. The Soviets maintain a steady stream
of diplomats flowing into the Persian Gulf. During
1988 there were significant contacts between Soviet
officials and leaders of two of the GCC states that the
Soviets have targeted: Saudi Arabia and Bahrain. The
20-22 June visit to Bahrain of the Soviet Ambassador
to Kuwait was the first visit by a Soviet official to that
country. the Ambassa-
dor briefed high-ranking officials, including the Amir,
on the US-USSR summit and discussed the prospects
for relations among Bahrain, Saudi Arabia, and the
Soviet Union. The US Embassy in Manama reported
25X1
that this visit was a significant step toward establish-
'~FY~
ing diplomatic ties.
In late February, Vladimir Polyakov, Chief of Near
East and North Africa Administration of the Soviet
Foreign Ministry, was the first Soviet official to visit
Saudi Arabia in 50 years. Although Saudi and Bah-
raini officials claim that full diplomatic relations are
not in the offing, Moscow probably views these con-
tacts as a conspicuous success of its Middle East
policy.
the Arab-Israeli conflict were discussed.
Moscow regularly dispatches officials to Kuwait,
Oman, and the UAE to strengthen bilateral ties,
change Gulf perceptions of the Soviet Union, and sell
Soviet policy. In January 1988, the Deputy Chief of
the Central Committee's International Department
and the Kremlin's top party expert on the Middle
East, Karen Brutents, consulted Kuwaiti and UAE
officials on Soviet policy toward Iran and the UN
cease-fire resolution for the Iran-Iraq war, a major
thorn in USSR-Gulf state relations. In February,
Ambassador at Large Oleg Grinevskiy met with the
Amir of Kuwait to discuss the Soviet withdrawal from
Afghanistan. the
Soviets requested Kuwaiti support for the Soviet
withdrawal plan. During his April visit to Oman, the
UAE, and Kuwait, Deputy Chairman of the Supreme
Soviet Georgiy Tarazevich emphasized Soviet domes-
tic liberalization and attempted to portray the "new"
Soviet leadership as being more in tune with conserva-
tive Arab thinking. Another consultation with the
Kuwaitis was held in early May between Ambassador
at Large Mikhail Sytenko and Kuwaiti officials.
During this visit, the Gulf war, bilateral issues, and
Changing GCC Attitudes
Moscow's approach of portraying the current Soviet
leadership as being less ideological and, therefore, less
intimidating than its predecessors has eased Gulf
fears of the Soviet threat. Its policy has favorably
influenced the Gulf states to reevaluate their position
on the Soviet Union and has made relations with
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Moscow a more palatable option. There now seems to
be a willingness among the GCC states to accept the
USSR as an important regional actor. At the very
least, the GCC states seem to be more disposed to
consider Soviet offers. In late 1986,
he Saudis rejected a request from the
Soviets to allow a "private" trade delegation to meet
with senior members of the Saudi Chamber of Com-
merce. Since then, rumors of an impending visit by
Foreign Minister Shevardnadze to Saudi Arabia con-
tinue to abound, a Saudi official was unwilling to rule
out the establishment of Soviet Bloc trade missions,
and Bahrain's Foreign Minister told the US Ambas-
sador in March 1988 that it was unrealistic to ignore
the Soviet Union.
Outlook
Soviet diplomatic maneuvers have now yielded tangi-
ble results in Qatar and are likely to yield more
feathers for Gorbachev's cap over the next two years,
possibly even the establishment of diplomatic rela-
tions with Bahrain and Saudi Arabia. However, a real
increase in Soviet influence in the Gulf will, in our
view, be harder to come by. Moscow will have to
address major Gulf concerns before it will be able to
translate its diplomatic gains into a lasting, significant
presence in the Persian Gulf.
Notwithstanding Iran's recent acceptance of UN
Resolution 598, the Iran-Iraq war will continue to
dominate Gulf Arabs' attention. Consequently, Mos-
cow is finding it increasingly difficult to balance its
Gulf strategy with its desire to improve relations with
Iran. Gulf leaders are dissatisfied with Soviet reluc-
tance to support afollow-on embargo resolution to
Resolution 598 and with Moscow's continued courting
of Teheran. To avoid undermining its fragile relation-
ship with Iran, the Kremlin so far has been willing to
risk Arab displeasure. This fact has not been lost on
most of the Gulf states-Oman and the UAE are
interested in maintaining ties to Iran-and will con-
tinue to complicate Soviet Gulf diplomacy.
While the ongoing withdrawal from Afghanistan will
remove a stumblingblock to improved USSR-Gulf
relations, the memories of the invasion will continue
Chinese Inroads in the Gu4/'
We believe that the Soviets are concerned about
Chinese inroads in the Gulf. Relations between China 25X1
and Saudi Arabia have been developing rapidly in 25X1
recent years. Gulf leaders seem to view China as
politically and economically more attractive than the
Soviet Union. The sale of the CSS-2 missile system
and increasing trade and diplomatic contacts are
likely to hasten formal Saudi ties to Beijing. In
addition, the Saudis
plan to participate in an energy trade fair in Beijing in
September, which some senior Saudi officials view as
an important step toward establishing full diplomatic 25X1
relations. 25X1
Formal relations between China and Saudi Arabia
will be discomforting to Moscow as these ties are
likely to be established well before relations with the
Soviet Union are normalized. Moreover, the increas-
ingly close Chinese-Saudi relationship and the will-
ingness of China to provide otherwise unattainable
military hardware make it likely that the other Gulf
Arab states will expand ties to the Chinese. In early
July, Qatar and China established diplomatic rela-
tions at the ambassador level, while, according to the 25X1
US Embassy in Beijing, a senior Chinese official
indicated that China and Bahrain could establish
diplomatic relations by the end of the year. Moscow
may fear that a close working relationship between
the Chinese and the Gulf Arabs will reduce the
attractiveness of the Soviet Union and hamper its
ejforts to improve its position in the Guff ~
to remind the Gulf monarchies of the Kremlin's
willingness to use force to advance Soviet goals. The
1987 border clash between Oman and South Yemen,
the radical Soviet client, probably underscored for the
Omanis the limits on Moscow's ability to substantially
influence even a client's behavior and, therefore, to 25X1
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~..,..,~
Recent Soviet Activity in the Persian GuU
l August USSR and Qatar establish diplomatic
relations.
8 July Economic/Military delegation signs $300 mil-
lion arms contract with Kuwait.
10-21 June Soviet Ambassador to Kuwait visits Bahrain;
first official Soviet visit.
9-/1 May Mikhail Sytenko, official envoy of the Foreign
Ministry, visits Kuwait.
Mid-April Eduard Gostev, Deputy Chairman for the Bank
of Foreign Activity, visits Kuwait.
/-/0 April Visit to Kuwait, Oman, and the UAE by Soviet
Deputy Chairman of the Supreme Soviet
Georgy Tarazevich.
1-6 March Visit to Kuwait by a delegation from the Soviet
Academy of Science.
10-12 February Vladimir Polyakov, Chief of MFA Near East/
North Arica Countries Bureau, stops in Ri-
yadh; highest level Soviet visit in 50 years.
l9 February Ambassador at Large Oleg Grinevskiy stops in
Kuwait.
S-l2 January Middle East expert of the CPSU, Karen
Brutents visits Kuwait and the UAE.
Late 1987 UAE /slamic delegation visits the Soviet
Union.
November Soviet participation at Ash Sharigah (Sharjah)
(UAE) trade fair.
October Soviet Muslim delegates participate in Third
/slamic Cottierence in Mecca.
June
protect their security. Furthermore, Gulf Arab lead-
ers retain their basic anti-Communist attitudes, and
they still fear that an increased Soviet presence would
invite Soviet meddling and destabilization of their
regimes.
Trade with Communist countries is on the rise, but it
is still a small fraction of overall Gulf foreign trade.
The Gulf Arabs prefer to deal with the West and will
continue to maintain their political, economic, and
military ties there. The US naval presence in the Gulf
underscores, in the eyes of the Gulf leaders, that the
United States is alone able to protect their interests.
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The Soviet Navy in the
Mediterranean: Gorbachev's
Actions Belie His Words
In his 16 March speech to the Yugoslav Federal
Assembly, General Secretary Gorbachev called for a
freeze on Soviet and US naval forces in the Mediter-
ranean. Adecline in Soviet ship strength in the
Mediterranean over the past two years would, on the
face of it, seem to underline the sincerity of Gorba-
chev's Mediterranean proposal. The proposal, howev-
er, appears to be more a repackaging of past Soviet
gambits than a major shift in Soviet policy, and the
decline in ship strength probably is best explained as a
step to conserve resources. At the same time, over the
past year, Moscow has sought to gain greater access
for the Soviet Navy's use of Mediterranean port
facilities. In particular, the Soviets appear to be
enlarging their facilities at the Syrian port of Tartus,
may be receiving greater port access in Egypt, and
appear to be expanding naval access in Libya. We
believe that at this time Moscow is seeking port
privileges to decrease the logistic burden on naval
auxiliaries. But, if Moscow so chooses, these expanded
port priviliges could enable the Soviets to enlarge
their naval presence in the future. Gorbachev will
probably continue to reiterate his arms control pro-
posal and cite the decline in naval presence as evi-
dence that the USSR is a responsible regional power.
He also is likely to cite the negative US reaction to his
proposal to justify a continuing Soviet presence in the
region.
Repackaging
Gorbachev used his March visit to Yugoslavia to
repackage Soviet proposals on arms control in the
Mediterranean, apparently seeking to embellish Mos-
cow's arms control image while legitimizing its pres-
ence in the region. In his speech to the Yugoslav
Federal Assembly, Gorbachev called for a freeze on
Soviet and US naval forces in the Mediterranean
beginning 1 July and proposed the extension of naval
confidence-building measures ICBMs) to the Mediter-
ranean. The General Secretary also reiterated Mos-
cow's interest in a conference of "representatives of
Mediterranean states and other interested parties to
bring together the many initiatives on the Mediterra-
nean and to determine the rational sequence and
order of their implementation." He did not indicate
the venue for such talks and the types of activities to
be covered.
Gorbachev probably chose to announce his Mediterra-
nean proposal in March with an eye toward compli-
cating NATO discussions of equipping US vessels in
the Mediterranean with sea-launched cruise missiles
to compensate for systems to be removed under the
INF Treaty. Soviet officials have strongly condemned
this plan and other methods of compensation. In his
speech to the Federal Assembly, Gorbachev labeled
Western calls for such compensation as one of the
"absurdities" of the early March NATO summit in
Brussels.
As a followup, and a probable elTort to prompt a US
response, Fleet Admiral Chernavin, Soviet Deputy
Defense Minister and Commander in Chief of the
Soviet Navy, on 25 April repeated the proposal for a
freeze and called for mutual reduction by the United
States and the Soviet Union in the Mediterranean to
15 warships and 10 support ships-ceilings which
would have a far lesser impact on Soviet naval
operations in the Mediterranean than on those of the
US Navy in these waters. On 28 April the Warsaw
Pact submitted language on issues related to security
and cooperation in the Mediterranean for inclusion in
the final document of the Vienna Conference on
Security and Cooperation in Europe (CSCE) followup
meeting.
Gorbachev first raised the issue of Mediterranean
security during the March 1986 visit of Algerian
President Bendjedid to Moscow. He claimed that the
Soviets would withdraw their fleet from the Mediter-
ranean if the United States would do so. The General
Secretary said that Moscow had "no need to have its
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Gorbachev made the following statements in his
address to the Yugoslav Federal Assembly, 16 March
1988:
? For us the Mediterranean Basin is not a foreign,
remote region, it is close to our southern border and
the only maritime route linking our southern ports
with the world's ocean line through it. Naturally we
are interested in the routes of peace, not war,
passing through here.
? Along with the proposals to reduce military poten-
tials in the Mediterranean area, made by the Soviet
Union earlier, we would like to submit additional
proposals for consideration by the international
community.
? First. Cor~irming our readiness for the withdrawal
of the navies of the USSR and the United States
from the Mediterranean, we propose not to put this
off until the Greek calendar, and, as the first step,
already beginningfrom July 1 of this year, to freeze
the number of ships and the potential of the naval
forces of both countries.
naval fleet in the Mediterranean on a permanent
basis" and kept it there only because of the "threaten-
ing" presence of the US 6th Fleet. Gorbachev also
called for the reduction of armed forces in the region
and the withdrawal of ships carrying nuclear weapons
in the Mediterranean, reiterating earlier Soviet CBM
proposals dating back to 1963.
Gorbachev has made similar proposals for other naval
regions. In his 29 July 1986 speech in Vladivostok and
23 July 1987 interview in the Indonesian newpaper
Merdeka, he proposed talks on limiting naval activi-
ty-including exercises and maneuvers-and institut-
ing CBMs in the Pacific and Indian Oceans. The
initiative has since been refined to include restricting
areas where nuclear-capable naval vessels operate,
? Second. The Soviet Union and the United States
could notify each other and all Mediterranean
countries in time about the sending of naval ships
and military exercises and invite observers to them.
? Third. The development by Mediterranean and
other interested countries ojprinciples and methods
of ensuring the sQ1ety of lanes of intensive shipping,
especially in international straits, will have every
support.
? It would be useful now to put all these proposals
together, bring them to a system, determine the
rational sequence and order of their implementa-
tion. Ibelieve this task could be taken up by a
corEference of representatives ojMediterranean
states and other interested countries. We and not
only we alone have expressed this idea in the past
and it is acquiring growing relevance.
curbing antisubmarine warfare operations, and freez-
ing the number of nuclear-capable aircraft in the
Asian portion of the USSR provided the United
States does not deploy additional nuclear systems
capable of reaching Soviet territory.
Gorbachev has also proposed limiting Nordic area
naval activity. In his 1 October 1987 Murmansk
speech, he called for limiting major naval exercises
and activities, designating areas of the Atlantic in
which antisubmarine warfare forces and systems
would be banned, renouncing naval maneuvers in sea
lanes and seasonal fishing areas, and preventing large
naval concentrations in international straits.
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Gorbachev thus far has not received a positive echo.
According to the US Embassy in Belgrade, Gorba-
chev's proposal was ignored by Yugoslav media fol-
lowing his March visit. Reporting from the Embassy
at Belgrade indicates a senior Yugoslav Foreign Af-
fairs official told the US Deputy Chief of Mission
(DCM) that Belgrade was not happy that Gorbachev
used his visit to Belgrade as a platform for proposals,
sprung at the last minute, that Belgrade believed were
more the purview of the Nonaligned Movement
(NAM) Mediterranean states. NATO countries have
dismissed Gorbachev's call as mere propoganda. To
date, there has been no Arab reaction to the Gorba-
chev proposal.
Decline in Naval Operations
On the face of it, Gorbachev's rhetoric is supported by
a decline in Soviet ship strength in the Mediterra-
nean-from 41 ships in 1986 to 36 in 1987. In the
past two years, Soviet ship days in the Mediterra-
nean-the presence of one ship away from home
waters for one day-have also declined (see figure).
This is apparently part of an overall decline in Soviet
naval deployments worldwide. Soviet naval deploy-
ments overseas in 1987 declined by 4 percent com-
pared with those in 1986, continuing athree-year
downward trend since the high of 1984, with cutbacks
in most major deployment areas.
The decline is probably a response of the Soviet Navy
to political pressure to save resources. There are
indications that a decision was made in late 1985 to
conserve resources, including fuel and reactor life. In
January 1986, the newly appointed Fleet Admiral
Chernavin wrote that "concern for economy and thrift
is closely connected with maintenance and repair and
with the assurances of reliable equipment operation."
Moreover, in a July 1987 interview with Krasnaya
zvezda, Admiral of the Fleet Smirnov said that "we
do not yet have the ability to promptly repair all ships
and vessels. Repair work often takes too long and the
quality is not always satisfactory. And if one ship
takes too long to repair, another is forced to take on
additional tasks and consequently gets worn out more
rapidly."
Soviet Ship Days in the Mediterranean Sea,
1978-87
General purpose submarines
? Surface combatants
Mine warfare
The emphasis on resource conservation is probably
related to General Secretary Gorbachev's drive to
improve efficiency of resource use. Since taking of-
fice, he has emphasized that both the civilian and
military sectors will have to increase their output
mainly through raising productivity, rather than by
using resources. At the same time, by economizing on
Hydrographic
Auxiliary
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resource use in military operations, Gorbachev may
intend that additional support be provided to the
industrial modernization program, which he has la-
beled atop priority.
Expanding Port Access
Despite the decline in Soviet ship strength and Gorba-
chev's proposal for removing foreign fleets, Moscow
has over the past year been expanding its port access
in the Mediterranean. At present, the Soviets are
enlarging their use of the Syrian port of Tartus, may
be receiving port access to Alexandria, have slightly
expanded their use of Yugoslav ports, and may be
expanding naval access to the Libyan port of Tobruq.
Tartus. A new agreement with Syria-probably con-
cluded during the 16-27 October 1987 visit to Syria
by Fleet Admiral Chernavin, Commander in Chief of
the Soviet Navy-allows for expanded Soviet use of
the port facilities of Tartus. The agreement,
allows Moscow to establish
repair and maintenance facilities near Tartus in ex-
change for additional coastal defense equipment and
the cancellation of part of Syria's military debt. A
section of Tartus will become an exclusive Soviet
onshore naval repair and maintenance facility,
the Soviet facility began in late 1987
ets use the base as a secure mooring for the depot ship
that provides upkeep to the diesel submarines serving
the Mediterranean.
access to the port of Alexandria. Cairo,
has agreed in principle to renew
access for Soviet naval vessels-banned from Egyp-
tian ports since 1976-to the port of Alexandria for
repair and refueling. The US Consul General in
Alexandria reports that the shipyard is in bad repair
and that much work needs to be done before it can be
used. Soviet technicians may have visited the port to
assess its readiness: in July 1987 a Soviet newspaper
mentioned their impending visit and added that Egypt
had asked the USSR to help modernize the shipyard.
Cairo may have discussed granting the Soviet Navy
limited use of the Alexandria facility in return for
Moscow's assistance in upgrading the shipyard. The
Egyptians also might hope that opening their port
would help them to eventually market their ship
maintenance and repair services to the Soviets.
The Egyptians habitually move slowly in such mat-
ters, however, partly from their awareness of US
concerns about the security implications of Soviet
access to the port. Egyptian security officials also
have concerns of their own and will attempt to
monitor the activities of Soviet personnel and limit
their mobility.
Acquisition of port and basing facilities in Alexandria
in 1968 was important in enabling the Soviets to
extend their naval presence into the Mediterranean
and the Indian Ocean. Sadat closed Alexandria port
to Soviet warships in 1976. The loss was painful for
the Soviets, who were forced to alter their strategic
naval planning, provision their ships from naval auxil-
iaries, and look elsewhere for ports in the region
capable of resupplying and repairing Soviet vessels.
Tivat. Moscow has slightly expanded its use of the
Yugoslav port of Tivat. In September 1987, Yugosla-
via raised the limit on foreign warships that could be
serviced in a Yugoslav port at any time from two to
three, and since then three Soviet naval ships have
been present in Tivat.
Moscow for years has pressed for greater access, but
Belgrade's move will not significantly increase Soviet
naval capabilities. The change in Yugoslav law will
merely permit more Soviet technicians access to Tivat
to support overhauls, bringing more work to the
Yugoslav port. Adding the third ship to Tivat may
have been Belgrade's way of easing Soviet pressure to
increase naval access to other Yugoslav shipyards.
Tobruq. Moscow may also be expanding its use of the
Libyan port of Tobruq. Since December 1987, imag-
ery shows that Moscow has been constructing a new
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storage warehouse on a pier where Soviet combatants
normally moor at the port of Tobruq. The warehouse
possibly will be used at least to store naval supplies for
the Mediterranean Squadron and may be designed
ultimately to support expanded Soviet use of the port.
The 14-19 March visit of Admiral Chernavin may
signify renewed Soviet attempts to expand access to
Libyan port facilities. To date, however, there has
been no marked change in the Soviet naval presence
in Libya.
At present, it appears that the Soviets are largely
motivated by the fact that their force of naval auxilia-
ry ships is not overly large. Moscow appears to be
pursuing access that will allow Soviet ships and
submarines to be refueled and resupplied by shore-
based facilities, with perhaps some minor repairs and
maintenance being performed as well. In the future,
Moscow could use expanded privileges to enlarge its
naval presence in the region
Elsewhere in the Mediterranean, Moscow has contin-
ued its efforts to maintain and expand its presence in
the region. in
February Moscow signed a new annual maintenance
contract with the Manzil Ba Rugaybah shipyard in
Tunisia, despite the fact that the Tunisians demanded
a steep price for repairs the Soviets deem inadequate.
Moscow has also continued to support its allies
summit in June 1988, the Soviets sent two surface
combatants to Algiers, their first visit since 1985.
Outlook
[n an attempt to bolster his arms control proposal,
Gorbachev is likely to use the downturn in Soviet
naval deployments as evidence that Moscow is sincere
about demilitarizing the Mediterranean. He probably
will also try to gloss over the negative reaction to this
proposal by pointing to US unwillingness to consider
naval cutbacks as undermining the stability of the
region. At the same time, Moscow will use US
noncompliance with the 1 July freeze date as addi-
tional justification for a Soviet naval presence in the
region. Gorbachev may cite the recent shootdown of
the Iranian airbus by the United States as proof that
the US naval presence is dangerous, not only in the
Gulf but also the Mediterranean.
Gorbachev may call for a conference of major naval
powers and other interested states within the UN
Security Council to discuss Mediterranean arms con-
trol. Moscow is likely to tie its call in the UN for
naval disarmament and expanded CBMs to its "Com-
prehensive System for Peace and International Secur-
ity."
Meanwhile, Gorbachev probably will continue to push
for expanded Soviet use of Mediterranean ports for
various reasons:
? Soviet shore facilities in Tobruq would enable the
Soviets to refuel and resupply their ships in the
central and western Mediterranean and reduce the
requirement for deploying naval auxiliaries to the
area. Even if Qadhafi were to grant them full basing
rights, however, the Soviets would probably place
some limits on their presence: they would be wary of
making a major investment in a country run by a
man that they know from experience is erratic and
unreliable; they would have to weigh the possible
adverse effects an expanded military presence would
have on Qadhafi's neighbors-particularly Egypt
with which Moscow is attempting to improve
relations.
? Although Moscow has adjusted to the loss of Alex-
andria by relying on auxiliary ships in the Mediter-
ranean for repair and refueling needs, renewed
access would ease the burden on its force, cutting its
operating costs and boosting ship life. In addition,
Moscow undoubtedly values the political tensions
between Washington and Cairo that are likely to
arise over renewed access to Alexandria.
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? The Soviets probably hope to secure an exclusive
Soviet repair facility at the Syrian port of Tartus.
Moscow probably hopes to use the Syrian port for
more substantial maintenance and servicing of Sovi-
et submarines. The Soviets would then be able to
keep their submarines in the Mediterranean for
longer periods of time and thus extend submarine
operational life by eliminating the constant change-
over of ships to and from Northern Fleet bases. The
two floating piers along the breakwater will give the
Soviets increased security and may allow for a
larger Soviet naval presence in the port.
? Expanded use of Mediterranean ports would en-
hance Moscow's ability to use naval exercises-such
as port visits and early warning support-as a
political-military instrument. The Soviets hope that
their naval activities will contribute to a close and
congenial relationship with the local government
that will permit Moscow to influence its foreign
policy in directions favorable to the USSR.
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Mongolia: Winds of Change
The Soviets seem to be making a concerted effort to
convince interested third parties that they are willing
to loosen their grip on Mongolia. They have with-
drawn part of their forces from Mongolia, encouraged
Ulaanbaatar to improve ties to Beijing, and even
allowed the Mongolians to establish relations with the
United States, after having vetoed any movement in
that direction in the past. We probably will see
further moves in the next year or so-such as addi-
tional troop cuts in Mongolia or the resumption of
Sino-Mongolian party ties. We also expect the Soviets
to intensify their pressure on Mongolia to put its
economic house in order, thus encouraging the Bat-
monh regime to get on the glasnost and perestroyka
bandwagon
The Sino-Soviet-Mongolian Triangle
General Secretary Gorbachev's comment at Vladivos-
tok in July 1986 that Soviet and Mongolian leaders
were weighing a "considerable" reduction of the
Soviet forces in Mongolia-part of a broader effort to
improve relations with Beijing-evidently did not
please his Mongolian allies. The Mongolians dutifully
endorsed the troop withdrawal initiative, but without
showing any enthusiasm for the idea, and public
comments by Soviet and Mongolian leaders suggest
that the two sides did not see eye to eye on the matter
for several months. British diplomats in Moscow
reported that there was a major debate in Ulaanbaa-
tar over the question in the fall of 1986, with the
"moderates" prevailing in the end, presumably be-
cause they were convinced by Moscow's argument
that an easing of Sino-Soviet tensions justified the
troop cuts
We have only sketchy information on the attitudes of
the top Mongolian leaders. We doubt that General
Secretary Batmonh was very enthusiastic, however, in
view of the fact that he did not publicly endorse the
move until 19 January 1987, after Moscow had
announced that it would be implemented that spring.
We believe that former Foreign Minister Dugersuren,
who was replaced in June 1988, opposed the plan;
Dugersuren told a press conference in early Septem-
ber 1986 that bilateral talks on the troop withdrawal
had not begun, contradicting Gorbachev's remarks at
Vladivostok. The replacement of Lieutenant General
Purebdorj as Chief of the Mongolian General Staff in
late 1986 or early 1987 suggests that he too may have
been opposed; Purebdorj indicated in January 1987
that he saw the troop withdrawal as a unilateral move,
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version of the original troop reduction plan. If so, we
assume that reservations among the Soviet military 25X1
and in Ulaanbaatar accounted for the adoption of a
more modest plan.
The withdrawal of one division and some smaller units
in April-May 1987 reduced Soviet ground force levels
in Mongolia by approximately one-fifth. Soviet and
Mongolian ground forces together are still twice the
size that they were 10 years ago, however, and the
39th Army in Mongolia remains the best equipped 25X1
Soviet force in the Far East. Moscow also has sup-
ported amajor expansion and upgrade of the Mongo-
lian Army, allowing the Mongolians to pick up a
greater share of their own defense, and has strength-
ened Soviet capabilities at other points along China's
northern perimeter. These improvements reduce the
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impact of the recent withdrawal from Mongolia,
which probably had little effect in any case on Soviet
? An agreement was signed in July 1987 renewing
scientific and technological cooperation after a sus-
capabilities directed against China.
Nonetheless, the troop withdrawal was the first con-
crete step that the Soviets had taken to address any of
Beijing's main security concerns, which the Chinese
call "obstacles" to afull-fledged normalization of
Sino-Soviet ties. Gorbachev probably hoped that Beij-
ing would see the troop withdrawal as a sign that the
USSR is willing to make concessions in order to reach
a genuine improvement in Sino-Soviet relations. The
Soviets also may have hoped that this move would
convince Beijing to agree to talks on mutual force
reductions along the Sino-Soviet border, which Gor-
bachev had also proposed at Vladivostok. The public
Chinese response has minimized the significance of
the partial troop withdrawal
Ulaanbaatar's own relations with Beijing have im-
proved substantially during the past two years:
? During a visit to Mongolia in August 1986 by Vice
Foreign Minister Liu Shuqing, the two sides signed
their first consular accord, putting an end to the
Mongolian expulsion of Chinese residents from
Ulaanbaatar that began in 1983.
? Bilateral trade increased to US $6.25 million in
1987-almost 3.5 times the amount for 1986. Sino-
Mongolian trade is still miniscule, however, com-
pared with Mongolia's trade with the USSR, which
amounted to US $2.4 billion, at official exchange
rates, in 1987.
? The two sides signed a boundary treaty in early
June 1987.
? National People's Congress Vice Chairman Peng
Chong made a "goodwill" visit to Mongolia in
1987-the first of its kind in over 20 years. Peng
had a "cordial conversation" with party chief Bat-
monh, who noted that an improvement in Sino-
Mongolian relations would help promote the inter-
ests of the socialist cause."
pension of more than 20 years.
The Batmonh regime has yet to achieve afull-fledged
normalization of its relations with Beijing, however,
and it is questionable how far the two sides can
proceed, particularly on such questions as a resump-
tion of formal party-to-party relations or a summit
meeting, without corresponding progress in Sino-Sovi-
et ties.
The Normalization of US-Mongolian Relations
The Soviets must have given approval to Mongolia's
establishment of formal diplomatic relations with the
United States on 27 January 1987-following off-
again, on-again negotiations stretching over 15 years.
They had torpedoed talks on the issue during the early
1970s and presumably still have reservations about
letting the United States acquire a listening post" in
Ulaanbaatar. But they probably calculated that the
establishment of US-Mongolian relations would help
convince Beijing that Moscow is willing to loosen its
grip on Mongolia. Beijing-unlike Taipei-has no
territorial claims on Mongolia, and it may welcome
improved US-Mongolian ties as a means of lessening
Ulaanbaatar's isolation and dependence on the
USSR.
It is conceivable that the Soviet decision to approve a
normalization of US-Mongolian ties was related to
the Mongolians' acceptance of a partial troop with-
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Perestroyka, Mongolian Style
A recent article in Pravda by Mongolian Party Secre-
tary Balhaajab admitted that Ulaanbaatar had made
many mistakes in the past and spoke of an urgent
need for radical reforms. He outlined five major
tasks-eliminating conservative management, chang-
ing economic thinking, introducing economic account-
ability, allowing enterprises to operate independently,
and putting an end to rigid centralized planning. He
also implied that Moscow was putting increased pres-
sure on the Mongolians to complete the creation of
the material and technical base of "socialism" and to
start developing sound policies that would bring their
economy closer to the level of that of the USSR and
its East European allies.
Balhaajab noted approvingly that there had been a
decrease in the amount of redtape and insensitivity
toward human needs and an increase in glasnost.
Recent observations of Western diplomats in Ulaan-
baatar raise questions on the first point, but there
appears to have been an increasingly frank discussion
of economic problems in the Mongolian media. Bat-
monh set the tone at the MPRP Central Committee
plenum in December 1987 by admitting that the
country's livestock population had decreased during
the past 16 years and that managerial failures-not
unfavorable natural conditions and weather-were
the chief reasons for this stagnation in the main sector
of the Mongolian economy.
Other high-ranking Mongolian officials took up the
cause earlier this year. The chief of the State Com-
mittee for Economic Planning complained somewhat
ominously at a session of the Council of Ministers in
mid-February that unnamed officials had allowed key
aspects of the annual economic plan to be "wrecked"
last year. "Wrecking" is a sensitive political charge in
Ulaanbaatar as well as Moscow, where it still con-
jures up memories of the show trials for alleged "anti-
Soviet" elements during the 1930s.
The Soviet media have been even more outspoken
about several problems in Soviet-Mongolian trade and
other forms of economic cooperation during the past
six months. We believe that the following develop-
ments are of particular concern to Moscow:
? Trade between the two countries seems to have
leveled off at 1.5 billion rubles (US $2.4 billion, at
official exchange rates) in the past two years, appar-
ently due to failures on both sides, and thus is
unlikely to reach the 1.92 billion rubles in 1990
called for in their current trade agreement.
? There seems to be considerable waste and misman-
agement of Soviet economic assistance to Mongo-
lia-which reportedly amounted to US $1.1 billion
in 1986 and $1.2 billion in 1987. The Soviets seem
to be rethinking the role of their civilian advisers in 25X1
Mongolia-estimated by the Chinese to number
30,000 to 40,000. A Soviet consultant at a state
farm recently complained that too many highly paid
specialists were doing manual labor, such as repair-
ing equipment and harvesting crops.
25X1
The Soviets also may hope to use the ongoing "res-
tructuring" within the Council of Mutual Economic
Assistance (CEMA) to improve Mongolia's economy.
one of 25X1
Moscow's primary objectives is to bind the economies
of Cuba, Mongolia, and Vietnam even closer to those
of the CEMA members. CEMA planning officials
have proposed a strengthening of scientific and tech-
nological cooperation, production, and trade ties to 25X1
these countries in hopes of pushing them to make
more efficient use of the economic assistance they
receive from CEMA.
In the meantime, Mongolian officials continue to talk
about going their own way on major economic re-
forms. In a recent meeting with US diplomats, a
Mongolian official rejected the word perestroyka and
described Mongolian reforms as "new improvements
in the mechanism of economic direction." In an
earlier discussion, a Mongolian diplomat had ex- 25X1
plained that Ulaanbaatar was exploring the full impli-
cations of the Soviet reforms to make sure that they
suited Mongolian circumstances.~~ 25X1
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?7Gt~Cl
The Mongolians, nevertheless, seem to be following
Moscow's lead on the reform question. A Mongolian
official recently told US diplomats that his govern-
ment is crafting a new law that will allow enterprises
to form joint ventures with companies from capitalist
countries. This law reportedly will complement a draft
law giving collectives and enterprises the right to set
wages according to the performances of their workers,
to establish contracts with similar enterprises in other
socialist countries, to export their goods independently
to those countries, and to set up foreign currency
funds from their export earnings. The official also
stated that since 1986, Mongolian enterprises have
had the right to set their own production plans-as
long as they conform with official guidelines on
quantity, quality, and technological direction. All of
these reforms bear a close resemblance to some new
Soviet practices under Gorbachev.
Future Prospects and Implications
Judging from Batmonh's record to date, we believe
that economic matters will continue to occupy the
regime's main attention for some time. There is a
need for major changes, which would play well in
Moscow, where the Soviets reportedly have been
taking a tougher look at the burden of keeping
"basket case" allies afloat. We believe the Soviets are
particularly interested in improved livestock breeding
(the Mongolian livestock population has actually de-
creased so much that it is smaller now than it was
over 40 years ago), better use of Mongolian fuel and
power supplies, and more rapid progress in developing
the extractive industries that serve their own econo-
Batmonh has been more careful to observe the con-
straints of collective leadership than was his predeces-
sor during his last years in office, and at the same
time-with Moscow's blessing-has encouraged a
more open discussion of the nation's domestic prob-
lems and possible solutions. For its part, Moscow
probably sees some benefit to expanding Ulaanbaa-
tar's contacts with the outside world but would veto
any move to loosen its ties to the Soviet camp; the
CEMA reforms suggest that the Mongolian economy
may be tied even more closely to the USSR and its
allies in the coming years.
It is not clear how much further the Soviets might be
willing to go in reducing their military presence in
Mongolia to help Sino-Soviet relations improve, but
we believe the Soviets are more likely to withdraw
substantial numbers of troops from Mongolia than
from the Sino-Soviet border. With the number of
Soviet civilian advisers in Mongolia-at all major
enterprises, as well as at almost every office in
Ulaanbaatar-we doubt that the Soviets view the
presence of their troops as an essential means of
keeping Mongolia firmly tied to the Soviet camp. But
Moscow almost certainly will insist on a quid pro quo
from Beijing-the signing of a nonaggression pact
with Ulaanbaatar, as well as some force reductions on
the Chinese side of the Sino-Mongolian border-
before pulling all of its remaining forces out of
Mongolia.
In the meantime, Moscow probably will encourage
the Batmonh regime to continue improving relations
with Beijing. The key question, in our view, is whether
the Soviets will let Mongolia follow the lead of the
USSR's East European allies in reestablishing formal
party-to-party ties and engaging in summit meetings
with the Chinese without insisting that Sino-Soviet
ties in those areas be restored first. The visit to Beijing
in late May 1988 by Czechoslovak General Secretary
Milos Jakes completed the cycle of visits by East
European party leaders that began in late 1986, and
the Soviets might believe that a Batmonh visit to
Beijing would move the Chinese closer to accepting a
resumption of similar Sino-Soviet exchanges. The
Mongolians, for their part, probably would be happy
to move ahead on such contacts with the Chinese, as
long as they have Moscow's blessing in advance.
25X1
25X1
25X1
25X1
25X1
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vccaca
Soviet Azerbaijan:
"Youth Bulge"
Sets Stage for Unrest
The Youth Bulge Strains Azerbaijan's Economy
Research done by the CIA shows that the emergence
of a "youth bulge" (20 percent or more of the
population in the 15- to 24-year-old age group) often
contributes to social instability.' Increased competi-
tion for opportunities in education, employment, and
housing results in frustration and discontent among
the young, frequently translating into unrest.
Azerbaijan has been experiencing a youth bulge for
more than a decade (figure 1). Although population
growth in the republic slowed in recent years, those
born in the period of the highest birthrates, the 1960s,
are reaching adulthood, straining the republic's econ-
omy. Growth of the young adult population of Azer-
baijan has outstripped the state's ability to provide
jobs, housing, and educational opportunities.
Jobs
Azerbaijan has not been able to provide new jobs fast
enough to employ its growing young adult population.
In the period 1970-85, growth of the able-bodied
population of the republic outpaced growth in social-
ized employment by a wide margin (figure 2). There
are now more than 250,000 people in Azerbaijan who
do not have jobs in the public sector,z according to a
1987 Soviet estimate. This represents 6.3 percent of
the able-bodied population of Azerbaijan. Although
many are women with young children, a growing
number of young men are reportedly joining the ranks
of those who are unemployed or make a living in the
private sector.
Desirable jobs are hard to find in the rural and
mountainous regions of Azerbaijan. In January 1988
the republic council of ministers censured local
Figure 1
Youth Cohorts, Ages 15-24
1970 75 80 85 90 95 2000 2005
25X1
governments of the Nagorno-Karabakh Autonomous
Oblast and surrounding areas for failure to employ
the "significant number" of jobless in the public
sector or to attract them to state-sanctioned forms of
private activity such as cooperatives. Criticism was
also aimed at their failure to combat the growth of
illegal private activity that has accompanied the rise
in unemployment.~~ 25X1
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occ~ c~
Figure 2
USSR: Growth of Working-Age Populations
and Employment, 1970-85 a
Working-age 0 Average annual
population employment in
public sector
Central
Asia
a Men, ages 16-59, and women, agcy 16-54.
b 1970-84.
~ Uzbekistan, Turkmenistan, Tajikistan, and Kirgiziya.
A lack of desirable jobs in mountainous areas has
prompted migration into the major cities of Azerbai-
jan. Young men, in particular, are attracted by the
lure of relatively high-paying jobs in the petroleum
industry, centered in Baku and Sumgait. According to
the Soviet press, up to 10,000 people move into Baku
each year. Many, however, end up in low-skill jobs
that city residents will not take, while others drift into
the private sector.
Housing
Azerbaijan's major cities suffer from severe housing
shortages. Because of the surplus of available labor,
enterprises do not need to provide decent housing to
attract workers. Managers often bring workers into
cities on temporary residence permits and leave them
to find accommodations as best they can. According
to a Soviet correspondent in Baku, "Crowds of re-
cruited workers have surged into the city, and the
outskirts and wasteland have been filled with home-
made shacks that have grown up overnight ... ap-
proximately 200,000 people live in these huts." The
press describes similar slums in Sumgait as "depress-
ingly squalid shantytown areas-temporary housing
improvised from scraps of sheet metal, wooden panels,
and rusty wire netting." According to Moscow News,
most of those involved in recent violence in Sumgait
came from the shantytowns
Education
Access to higher educational institutions (VUZs) has
narrowed considerably as the student-age population
of Azerbaijan has grown. Between 1970 and 1985, the
share of secondary school graduates going on to
higher education in the republic declined from 22.8
percent to 12.6 percent (figure 3).
Moreover, because of mistakes in educational plan-
ning, many of those who do gain entry into VUZs will
not find jobs in their field of study when they
graduate. Thousands of VUZ graduates-mainly in
the humanities-are out of work or underemployed.
Last year a Soviet newspaper noted, "In Baku alone
approximately 8,000 teachers are not employed in
teaching, and 3,600 of them are not working at all.. .
1,500 cultural specialists and hundreds of doctors are
registered as seeking employment." As a result of
such problems, the decision has been made to cut
admissions to secondary specialized and higher educa-
tional institutions in the republic by 4,000-a move
which will further limit access to higher education.
Rising Competition for Economic Opportunity
Sparks Disputes
Increasing competition for economic opportunities is
breeding resentment between Azeris and Arme-
nians-two ethnic groups with a long history of
animosity-who perceive discrimination in the alloca-
tion of jobs, housing, and access to higher education.
The regional papers are full of complaints of unfair-
ness, nepotism, and "clannishness." Hiring practices
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Figure 3
USSR: Daytime Secondary Students Admitted
to Higher Educational Institutions
Hostilities Rise to the Surface
The youth bulge created conditions in Azerbaijan
conducive to social instability-overcrowding in the
cities, frustrated expectations among the young, un-
employment, and growing resentment between ethnic
groups. Last year one Soviet commentator called
Baku "a breeding ground for crime" and warned that
work would have to be found quickly for unemployed
young people to "avert tragedies."
With the advent of Gorbachev's policy of glasnost, 25X1
young people began to give vent to long-simmering
grievances. In early 1988 tensions between Armenians
and Azeris erupted into demonstrations, strikes, and
violence that was sparked by the demand that the
Nagorno-Karabakh Autonomous Oblast-which has
a predominantly Armenian population-be taken
from Azerbaijan's jurisdiction and reunited with Ar-
menia. Reports from the region have noted the youth
of those who took part in violent riots. According to
the Soviet prosecutors, for example, "pogroms"
against Armenians in Sumgait were carried out by
youths with an average age of 20.~~ 25X1
Moscow's Shortsighted Approach
Putting Out Brusl~ires ...When ethnic tensions
erupt into violence, Moscow's standard response is to
"put out the brushfire" with a quick infusion of
investment to the affected area. Moscow is now
attempting to direct more resources to Nagorno- 25X1
Karabakh for projects to benefit the young popula-
tion, including increased construction of houses, recre-
ational facilities, and schools. The resolution also
instructs ministries to draw up plans for a number of
large construction projects in the region that should
employ thousands of people. According to Moscow 25X1
News, additional funds were also made available to
Sumgait. The city received five times its normal
allotment for social needs in the second quarter of this
year. 0 25X1
surfaced as an issue in recent ethnic disturbances
there. One Soviet official admitted that the best jobs
in the predominantly Armenian Nagorno-Karabakh
Autonomous Oblast are reserved for Azeris.
Regional differences in living standards also generate
charges of discrimination. The Armenian residents of
Nagorno-Karabakh, along with some other Soviet
observers, charge that there is economic discrimina-
tion against Nagorno-Karabakh by Azerbaijan au-
thorities. They complain that local industry is under-
developed, roads are neglected, and cultural facilities
are almost nonexistent in the region. Indeed, the level
of per capita investment in Nagorno-Karabakh is the
lowest of any Oblast in Azerbaijan.
...While Dodging the Basic Issues. Recent decisions
notwithstanding, rather than invest heavily in creating
jobs in areas that are experiencing a youth bulge-the
Caucasus, southern Kazakhstan, and Central Asia-
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Moscow has limped along with a 15-year-old policy of
attempting to manage rapid growth of the labor force
on the cheap by encouraging ministries to locate
small-scale, labor-intensive shops and subsidiaries in
towns and small cities near rural areas. This remedy is
meant to bring jobs into areas with the greatest labor
surplus and reduce migration to overburdened big
cities.
This strategy has largely failed, in part because of
lack of cooperation from industry. Enterprises are
reluctant to build facilities in the rural areas because
they need skilled workers, who are found in the cities.
The small shops that are constructed in rural towns
pay low wages and provide little to their employees in
terms of housing and services. Often local people shun
these jobs in favor of private-sector activity.
Moscow, moreover, has not yet promised any signifi-
cant increase in state investments to bolster the
economy and create more jobs in the southern tier. On
the contrary, Gorbachev maintains that these regions
should pull their own weight. He blames the problems
of republics with labor surpluses on the corruption
and mismanagement of local leaders and enjoins them
to rely less on subsidies from the center.
Altering Perestroyka?
A key objective of Gorbachev's economic reforms is to
curtail overmanning-apparently even in regions with
a labor surplus. Indeed, during 1987 thousands of
workers were reportedly laid off in transportation and
in the oil industry in the Baku area. It makes little
sense, however, to focus on creating high-productivity
jobs and cutting staff in areas of labor surplus. One
Soviet commentator took up this point early this year.
Describing the Kabardino-Balkar Autonomous Re-
public, in the north Caucasus, he reported that more
than 30,000 people were out of work there in 1985
and another 14,000 to 15,000 might be displaced as a
result of perestroyka.3 He argued that, "perhaps,
while generally intensifying the national economy, it
would be possible and even necessary to allow ele-
ments of extensive development in a number of re-
gions in order to increase employment."
The Potential,Jor Unrest in Central Asia
Central Asia's social irtJrastructure is even less devel-
oped than that of Azerbaijan, its population is less
educated, per capita investment is lower, and the
growth of its young adult population more rapid.
This suggests that tensions and the potential for
ethnic conflict could increase in that region as well.
In the past a number of factors have mitigated
problems related to the youth bulge and decreased
the potential for unrest in Central Asia:
? The local Slavic population clusters in the cities,
while Asians tend to stay in the countryside. This
reduces the competition between nationality groups
Jor housing.
? Competition for jobs is reduced by an ethnic divi-
sion of labor. Asians generally choose jobs in trade
and agriculture-activities which give them easier
access to the lucrative second economy, while the
European settlers seek jobs in industry.
? Finally, an active policy of reverse discrimination in
Central Asia has ensured that members of the
indigenous nationalities would occupy a substantial
share of leadership positions in VUZs, local govern-
ment, and industry.
The balance that has been established could be upset
over the near term by Gorbachev's policies and in the
longer term by increased migration to the cities.
Gorbachev's initiatives have already produced lay-
offs, an end to reverse discrimination, and a crack-
down on corruption in local governments. Moreover,
population pressures in the countryside-shortages of
water and arable land-may eventually generate
increased movement to the cities, heightening inter-
ethnic competitionlor jobs, housing, and other oppor-
tunities. At that point, the potential for unrest would
greatly increase. U measures are not taken to signif~-
cantly bolster the economy of the cities, social prob-
lems could be generated by even a modest accelera-
tion in the rate of migration.
25X1
25X1
25X1
25X1
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f
Outlook
Youth bulges in the southern republics will continue
to plague Moscow for at least three to five years.
While population growth in both Azerbaijan and
Central Asia will remain high relative to the rest of
the Soviet Union, the share of the population in the
15- to 24-year-old age group will dip in the 1990s.
After the year 2000, another youth bulge will begin to
emerge.
Ongoing disturbances in the Caucasus and continuing
population pressures in Central Asia may lead Mos-
cow to adjust or rethink its policies in the southern
tier (inset). The regime's options, however, are not
attractive. Increasing investment in that region would
mean diverting funds from important projects else-
where in the country. Efforts to force outmigration
could worsen ethnic tensions within the southern tier
and bring ethnic conflicts into the northern industrial
cities. Finally, allowing the private sector to soak up
even more excess labor could produce results that
would be unpalatable to Moscow, including greater
income inequalities and an increase in illegal diversion
of state resources to private activity. Moreover, this
would put more of the region's economy beyond state
control.
Youth bulges in the south represent a serious chal-
lenge for Gorbachev as he attempts to implement
perestroyka. His economic policies were aimed at the
industrialized regions of the country, where labor-
unlike that in the south-is scarce and well educated.
Measures that encourage the substitution of capital
for labor and elimination of manual jobs are ill suited
to regions where labor is abundant, capital is relative-
ly scarce, and skill levels are low. If firms and 25X1
entrepreneurs are not given flexibility to adapt pro-
duction processes and wages to local conditions, peres-
troyka may magnify the effects of the youth bulge by
eliminating jobs. Unemployment would heighten the
potential for more ethnic unrest and provide ammuni-
tion to opponents of reform. 25X1
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Figure 1
USSR: Estimated State Budget Deficit, 1981-88
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USSR: Sharply Higher
Budget Deficits
Threaten Perestroyka
General Secretary Gorbachev acknowledged in his
opening speech to the June party conference that the
state budget has been in deficit for many years. That
deficit has risen rapidly since Gorbachev came to
power, as government spending has surged while tax
revenues have remained almost unchanged. Moscow
is financing the deficit through money creation, and
inflationary effects are showing up in rising retail
prices, shortages, and large increases in savings. Gor-
bachev's options for controlling the deficit-mainly
curtailing spending-are politically unpalatable. Con-
tinued delay, however, could lead to inflation much
worse than the Soviets have experienced in the post-
war era.
Budget Deficit Balloons Under Gorbachev
General Secretary Gorbachev's policy of greatly in-
creased state spending on investment, coupled with
the tax losses from his antialcohol campaign, has
produced large budget deficits. Indeed, we estimate
that the Soviet state budget deficit increased from 11
billion rubles in 1984 (1.4 percent of Soviet GNP) to
64 billion rubles in 1987 (7.4 percent of GNP)
(figure 1). In contrast, the highest US Government
(federal and state combined) budget deficit repre-
sented 3.5 percent of US GNP in fiscal year 1986.
State Spending Surges .. .
General Secretary Gorbachev assumed power in
March 1985 in time to push for faster investment
growth in the 12th Five-Year Plan (FYP), then being
drafted. According to the FYP, budgetary outlays on
investment were to increase a huge 10 percent in
1986, followed by much smaller average annual in-
creases during the period 1987-90 (1.2 percent per
year). Soviet planners were probably concerned about
the budget-busting implications of Gorbachev's in-
vestment push, since other budget commitments were
not relaxed:
? Higher subsidies on food and livestock products
have greatly increased the burden of this expendi-
ture on the state budget.
state appropriations for the
subsidy of food prices increased from 24 billion
rubles in 1980 to 58 billion rubles in 1986.
25X1
25X1
? Perhaps reflecting the unevenness in weapons pro-
curement cycles, defense expenditures have been
increasing by about 3 billion rubles annually since 25X1
1985.
? Budget spending on social-cultural measures (edu-
cation, health services, pensions) increased an aver-
age of 7.5 billion rubles per year during 1986 and
1987.
? While certainly unanticipated, the Chernobyl' disas-
ter is estimated to have cost the state budget an
extra 2 billion rubles annually during 1986 and
1987.
Consequently, given the leadership's decision to push 25X1
investment spending at all costs, total government
spending rose by a record 30 billion rubles in 1986
and by another 18 billion rubles in 1987 (figure 2).
...While Revenues Fall Short
Meanwhile, Soviet state revenues had to absorb a
number of major impacts that held their growth
during 1986 and 1987 to less than 5 billion rubles:
? Until 1985 the Soviets increasingly counted on a
hefty indirect tax on retail alcohol sales to generate
substantial budget revenues, but a major impact of
the antialcohol campaign has been to cut this inflow
by some 30 percent.
25X1
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~~.. ~~
Figure 2
USSR: Annual Changes in State
Spending and Revenues, 1984-88
USSR: Sources of Finance of the Billion rubles
State Budget Deficit
Known sources
of finance
Long-term bor-
rowing (bond
sales)
Short-term bor-
rowing from the
State Bank (sav-
ings receipts)
Residual
Implied other
short-term bor-
rowing from the
State Bank
1.0
1.4
1.9
2.2
2.5
15.2
18.7
22.0
24.0
32.4
- 5.2
- 3.1
25.9
38.2
33.5
? Planning mistakes, retooling, implementation of re-
forms, and establishment of a new quality control
system disrupted industrial performance in 1987,
slowing growth of revenue from enterprise profit
taxes.
? The collapse in world oil prices in early 1986 led to a
sharp fall in state revenue from foreign trade as
hard currency oil exports fell from an average of
$15 billion during the period 1982-84 to just $7
billion in 1986. Moreover, Moscow's decision to
reduce heavily taxed consumer goods imports by 10
percent that year contributed substantially to the
overall fall in state revenue from foreign trade.
According to the 1988 state budget, spending is to rise
8 billion rubles. Moreover, Minister of Finance Gos-
tev said in October 1987 that foreign trade revenue
and turnover tax receipts will be lower in 1988 than
the levels planned for 1987. Consequently, we esti-
mate a 1988 budget deficit of some 70 billion rubles.
Money Creation Finances the Deficit
By necessity, the large deficits since 1986 have had to
be met by large government borrowing from the State
Bank (see table). This borrowing is equivalent to
injecting money into the economy and therefore is
highly inflationary (see inset). The money creation
takes place when the government uses the loans to pay
for pensions, teachers' salaries, military pay and
allowances, and so on. While taxes and sales of long-
term government bonds result in reductions of consu-
mers' purchasing power, government loans from the
State Bank effectively result in many more rubles
chasing roughly the same amount of consumer goods
and services.
Impact on Prices, Shortages, and Savings
The impact of rapid monetary expansion since 1986
on consumers' purchasing power is confirmed by
recent trends in a number of indicators:
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~ecre~
The Soviet State Bank (Gosbank) maintains and
monitors the accounts of the government (Treasury),
state enterprises and farms, and the population. The
bank takes in cash from state retail stores and issues
cash to state enterprises for payments of wages. The
bank debits and credits the accounts of state enter-
prises and the Treasury to reflect the millions of
noncash monetary transactions that take place
throughout the economy. The bank attempts to keep
cash balances segregated from noncash balances but
is not always successful.
Like any bank, Gosbank has assets and liabilities
that must be in balance. Its assets largely consist of
short-term loans to enterprises and also to the Trea-
sury. Its liabilities largely consist of the deposits
of the Treasury, enterprises, and the population.
The Treasury takes in taxes and other revenues and
deposits them in its account at Gosbank. Similarly,
as the government makes expenditures, Gosbank
debits the government's account and credits the ac-
counts of the payees or, as in the case of pensions,
pays out cash.
When state revenues are less than expenditures,
Gosbank makes short-term loans to the government
that are then credited to the government's account.
The government can then pay its bills for procure-
ment of weapons, pensions, education expenditures,
and investment just as (f the money came from tax
revenues. Gosbank's balance sheet is undisturbed by
this transaction: the increase in its short-term loans
to the government (an asset) is exactly duplicated by
an increase in liabilities (some combination of in-
creased cash in circulation and deposits of enterprises
and the population). Money has been created from
thin air.0 25X1
A portion of the short-term loans used by the govern-25X1
ment to cover its deficit is balanced by additions to
the population's savings accounts. The population's
willingness to increase its savings deposits reflects a
mix of factors: interest rates of 2 to 3 percent per
year, absence of consumer credit and hence the need 25X1
to save for big-ticket items such as cars, and lack of
desirable consumer goods. In the short run, the
population's willingness to set aside funds in savings
accounts, rather than attempt to spend them, relieves
some of the inflationary pressures of government
deficit financing on the consumer sector. On the other
hand, the population's accumulated savings accounts 25X1
represent an enormous purchasing power overhang
over the longer term, because savings are subject to
immediate withdrawal by their owners.)
? According to official statistics, average monthly
wages increased 4 percent during January-March
1988, while they had increased 2 percent in the first
quarter of 1987. Average wages were planned to
reach 207 rubles per month by the end of 1988 but
were already 210 rubles in March.
? Official Soviet data on prices in collective farm
markets in 264 cities indicate prices rose by an
estimated 9 percent in 1987 in contrast with an
annual average increase of 2.2 percent during 1981-
86. Food rationing increased in 1987, while severe
shortages of clothing and personal care items have
been singled out in the Soviet press.
? Soviet economists estimate that a large portion of
personal savings reflects excess purchasing power.
Soviet savers added record amounts to their savings
deposits during 1985-87, when the average addition
to savings per year doubled in comparison with the
average during 1981-84. According to official first-
quarter statistics, savings have continued to surge in
1988.1 25X1
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JCl"fCl
Soviets' Increased Recognition of the Problem
General Secretary Gorbachev first noted stresses in
the state budget in a speech to the party leadership in
June 1987 in which he criticized the Brezhnev regime
for relying on alcohol sales and oil exports as sources
of revenue. Addressing the party leadership in Febru-
ary 1988, he observed that "the country's economy
has come up against a very serious financial prob-
lem." Most recently, in his speech to the June party
conference, Gorbachev for the first time indicated
that a deficit exists:
For many years the outflow of the state budget
went faster than its income. The budget deficit
applies pressure on the market, undermines the
stability of the ruble and money circulation,
and gives birth to inflationary processes.
Soviet economists also increasingly have noted the
seriousness of the budget deficit and have linked it to
the problem of inflation. Nikolay Shmelev has provid-
ed the most graphic discussion so far in the April 1988
issue of Novyy mir. He states:
Having handed over income from alcohol to the
home distiller, the state has in the last two
years seen a drastic exacerbation of the imbal-
ance in the budget, in which the deficit is today
covered by that supremely dangerous, un-
healthy means-the mint.
Moscow has taken a number of steps over the last
couple of years to soak up excess purchasing power or
to otherwise manage the resulting shortages of goods
and services, including granting republic governments
greater authority to implement rationing, issuing a
new series of savings bonds and new forms of insur-
ance, and encouraging the development of legal pri-
vate businesses by individuals and small groups. These
policies, however, do not address the budget deficit
itself, and thus ignore the source of the purchasing
power problem.
Costs of Continued Inaction
Moscow probably cannot stay the present course
because of the implications of increased inflation for
the economy and for the reform process:
? Excess purchasing power of Soviet consumers does
not directly affect the state sector, but will tend to
expand the second economy where private initiative
can respond to increased market demand. As a
result, income will be redistributed from state work-
ers to second-economy participants, and tools, raw
materials, and finished goods will be diverted from
the state sector to the second economy, often
through theft.
? Rising prices in the second economy coupled with
more empty shelves in state stores will cut into the
living standards of citizens on fixed incomes, includ-
ing pensioners, bureaucrats, and many state work-
ers.
? Excess purchasing power will also undermine Gor-
bachev's wage reform, under which workers' wages
and salaries are to increase about 30 percent and be
tied closer to productivity. Inflation and shortages
will make rubles worth less and the incentive effects
of the wage reform will be blunted.
? Finally, as Gorbachev indicated in his June confer-
ence speech, price reform will not be effective if
current inflationary pressures are not eased.
Gorbachev's Options
The General Secretary needs to come to grips with the
budget deficit. However, most of the options open to
him-such as removing food subsidies, cutting de-
fense spending, or increasing income taxes-impinge
on the welfare of the population or key interest
groups, such as the military, just at a time when he
needs as much political support as he can garner.
Only large-scale imports of highly taxed consumer
goods and relaxing the antialcohol campaign offer
Moscow opportunities to address the budget deficit
25X1
25X1
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without gouging an important interest group. Both
steps are under discussion in Moscow:
? In early May, the Soviet central press called for a
reassessment of the antialcohol campaign. A Soviet
official told Embassy Moscow in June that the
Kremlin has decided to increase production of spir-
its and extend store hours primarily because of the
"huge" loss of revenue to the state.
? Importing large amounts of consumer goods also is
under debate. Such imports could be easily financed
through foreign borrowing. Moscow, however, has
taken a conservative approach so far, preferring to
reserve foreign loans for investment uses that ex-
pand domestic production capacity rather than for
current consumption. The leadership is concerned
that five or 10 years hence the Soviet Union would
have to service a much larger debt with little to
show for it. In discussions with Soviet officials
about this policy, a recent visitor to the USSR was
told time and again, "We do not want to become
another Poland."0 25X1
Gorbachev must act quickly. Because the inflationary
impact of the budget deficit exacerbates current
consumer problems, the leadership is fighting an
uphill battle in trying to improve the quality of life for
average citizens and gain support for perestroyka. If
the budget deficit is not brought down, it could lead to
inflation much worse than the Soviets have experi-
enced in the postwar era.
25X1
25X1
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Perestroyka and the Prospect
of Unemployment
The "Labor-Saving"Campaign
Gorbachev inherited a workplace characterized by job
security at the expense of efficiency and innovation.
Although full employment was held up by Soviet
leaders as a great achievement of Socialism, the
guaranteed job fostered along-term erosion of disci-
pline and a widespread attitude of indifference in the
Soviet labor force. Moreover, in the 1980s a sharp
slowdown in labor force growth in the industrialized
regions of the USSR created an even tighter labor
market in these regions, and greater job security for
Soviet workers.
When Gorbachev came to power, he instituted a wage
reform to induce enterprises to shed excess workers in
order to tighten discipline and improve the allocation
and utilization of scarce labor resources. Under the
reform, enterprises are to introduce higher pay scales.
Because no additional state funds are allotted, many
enterprises will be compelled to lay off workers to
finance wage increases for their remaining staff.
Soviet economists believe that this measure will result
in the release of 3 million workers from the productive
sector of the economy before 1990.' Leonid Abalkin,
director of the Soviet Institute of Economics, predicts
that another 3 million workers will be dismissed
during the period 1991-95 because of measures to
reform the system. Moreover, he believes that mecha-
nization and new technology could replace an addi-
tional 3-6 million workers. In total, these figures are
equivalent to 6 to 8 percent of the current Soviet labor
force. Retirements could take care of over half of the
projected layoffs, however.
In addition to staff reductions in industry, Gorbachev
is also urging sharp cutbacks in the bureaucracy. The
staffs of branch ministries, for example, are to be cut
by 50 percent by 1990. Sharp reductions are also
planned for the state bureaucracy at republic and
region levels. Altogether, according to TASS, 3 mil-
lion managerial jobs are to be eliminated by 1990
Comparison of Growth of Working-Age
Population and Employment, 1970-85 a
Central
Asia `
a Men, ages 16-59, and women, ages I6-54.
e Includes industry, construction, transport,
communications, services, and state
and collective farms.
` Uzbekistan, Turkmenistan, Tajikistan, and Kirgiziya.
Despite the large scale of the projected displacements, 25X1
the regime insists that jobs will be available for laid-
off workers in new enterprises, in services and private
cooperatives, and in "labor-deficit" areas in Siberia
and the Far East. The socialist system, Gorbachev
asserts, is equipped to handle the transfer of workers
between sectors and regions without the creation of
unemployment.
Working-age
population
Average annual
employment in
public sector b
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Nevertheless, Soviet economists are beginning to
openly discuss the possibility of unemployment. Niko-
lay Shmelev, for example, called the danger of losing
a job, "a very good cure for laziness, drunkenness, and
irresponsibility." He argues that unemployment al-
ready exists in the Soviet Union and estimates that
"unemployment that results from people looking for
or changing jobs is hardly less than 2 percent of the
work force at any given time, and that figure is more
like 3 percent if vagrants are taken into account."
With a labor force of 150 million, these rates imply
that at least 3 million Soviets are between jobs and
1.5 million more are chronically unemployed.
The Campaign Begins To Bite
Although the press has reported large numbers of
workers "released" in certain sectors of the economy,
thus far perestroyka has probably not produced a
significant increase in overall Soviet unemployment.
For example, 280,000 workers were reported released
in transportation and 101,800 in the petroleum indus-
try since 1986, but such totals often include job slots
that have been eliminated, retirements, and workers
moved to other jobs. According to one Soviet survey
up to 60 percent of workers released are found other
positions at the same plant or factory. Moreover,
because of efforts to bypass staff cuts, bureaucrats
who have been released often end up in new adminis-
trative units with different titles. The Soviet trade
union reports that a total of 1.5 million workers have
been laid off and placed in new jobs in the last 18
months.
There nevertheless are signs that the measures are
beginning to have a negative impact on workers. Some
workers who have been laid off are having trouble
finding new jobs, and the possibility of unemployment
is producing anxiety in the work force. In part to calm
these fears, a party and government resolution was
passed in January that spells out the rights of workers
subject to layoffs, including the right to two months'
notice before dismissal, and outlines a package of
benefits including up to three months of severance pay
and wage supplements during retraining. Previously,
workers were entitled only to two weeks of severance
pay. Finally, the resolution calls for major expansion
and improvement of the job placement system and
gives local governments the right to defer layoffs in
The Soviet trade unions-which usually function as
tools of management-charge that some released
workers are not being accorded rights and benefits
guaranteed to them under the January law. A resolu-
tion passed by the All Union Council of Trade Unions
on 4 July 1988 charged that some workers are
receiving "callous" treatment. The resolution cited
complaints that some enterprises fail to give the
required two months' notice before laying off workers,
dismiss workers without trade union approval, or fail
to take appropriate measures to find alternative work
for discharged workers. Numerous complaints were
lodged against enterprises that dismiss workers and
leave their management staffs untouched. The trade
union also found "serious omissions" in retraining
programs. Recent articles in the Soviet press, howev-
er, have blamed local trade unions themselves for
failure to represent workers' interests.
Letters in newpapers,
indicate a perception is growing among some Soviet
citizens that the selection of workers to be laid off is
handled unfairly. Ostensibly, layoffs are to result in
the dismissal of the least skilled and least motivated
workers. Workers complain, however, that enterprises
use criteria other than skills and performance to
determine who will be dismissed:
? Propensity to "rock the boat." Workers who are
"argumentative, who express their opinions," are
often the first fired. One worker protests that
"mediocre workers and time-servers will remain
while the active leaders might be made to leave."
? Age. According to one Soviet estimate up to 40
percent of workers already released from their jobs
have gone on pension. Many nearing retirement age
may also lose their jobs.
? Sex. The Soviet trade union recently noted that a
substantial number of women are being laid off. In
one research institute, the first fired were women
whose husbands had secure jobs. An official of the
Moscow placement bureau also observes that cuts
affect women more often than men.
exceptional cases.
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Moreover, regional economic and demographic dis-
parities are raising concern among local leaders over
the impact of labor-saving measures in the largely
Muslim republics along the southern periphery of the
Soviet Union. In these regions, rapid growth of the
working-age population is already outpacing growth
in employment (figure). According to one Soviet ex-
pert, in the Republic of Uzbekistan in 1986 growth of
the able-bodied population was three times greater
than growth in employment.Z He believes that this
trend will be exacerbated by measures such as wage
reform and the campaign to mechanize unskilled jobs,
and warns that this "will in the future unavoidably
lead to the creation of new groups of jobless people."
Anticipating Unemployment
Soviet leaders are bracing for problems as layoffs
continue. According to a top Soviet labor official, "the
restructuring of the economy is bound to cause some
pain.... There will be some suffering and disappoint-
ment. The skills and level of training of redundant
workers will not, of course, always match society's
needs." Times will be especially hard for those who
are unwilling or unable to retrain for new jobs or to
move to different regions of the country. For workers
unwilling to move from relatively comfortable cities
like Moscow, and for those unwilling to learn a new
trade, the job search may extend well beyond the
three months during which a worker is entitled to
unemployment compensation. Moreover, one Soviet
economist maintains that one-fourth of laid-off work-
ers are "unqualified" for other types of work. A top
labor official admits "it is doubtful" that the current
system of poorly staffed and under-equipped place-
ment bureaus can forecast layoffs and areas where
workers can be resettled. This will also slow the
process of placing workers.
If significant layoffs occur, more people are likely to
fall into the ranks of the chronically unemployed.
According to Soviet press reports, enterprises are now
' He reported that employment in the socialized sector grew by 0.95
percent between 1985 and 1986. In the same period the able-bodied
population grew three times as fast, by 2.69 percent. This is a
marked worsening of the employment situation compared with the
period 1981-85, when the average annual growth rate was 2.65 far
hiring more selectively. Those with poor work records
may be unable to find jobs. Local militias, responsible
for placing former prisoners and vagrants, have al-
ready discovered that enterprises are no longer willing
to hire such people. One Soviet journalist, writing on
the previously taboo subject of the homeless, forecast
that layoffs would "add to the army of vagrants." The
journalist, speaking of the need to recognize the
problem of chronic unemployment, noted that a Sovi-
et official in the Ministry of Justice has said that the 25X1
issue of making vagrancy no longer a criminal offense
in the Soviet Union is now being discussed.
Outlook
Despite reports of large-scale layoffs, it is unlikely 25X1
that perestroyka will produce massive unemployment.
In the northern industrialized regions of the Soviet
Union, growth of the labor force is stagnant, and
many enterprises, particularly those newly construct-
ed, are desperately short of workers. Nevertheless, the
match between available jobs and the skills and needs
of those laid off will be far from perfect, leading to
some increases in long-term unemployment, disrup-
tions in isolated areas, and a painful period of read-
justment for some workers.
Unless Moscow eases up on the implementation of
labor-saving measures in the Caucasus and Central
Asia, however, layoffs will aggravate localized unem-
ployment there and could increase the potential for
unrest in the region. One Soviet expert warned that
deterioration of the employment situation in the re-
gion would create "not only economic and social, but
also political problems."
Moscow seems determined to press the labor-saving
campaign, even though resistance from enterprise
managers and bureaucrats may slow its progress. As 25X1
layoffs grow more widespread, however, workers'
resentment of the loss of traditional job security is
bound to increase, particularly if the populace sees
little or no benefit from perestroyka in terms of
improved living standards. There have already been
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~7CLll CL
work stoppages and incidents of sabotage that may
have been connected with discontent over proposed
cutbacks, as well as with the increased demands that
are being placed on workers under perestroyka. An
escalation of labor unrest might lead Moscow to ease
up, at least temporarily, on labor-saving measures.
25X1
25X1
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~~.., ~~
Debate Continues
A debate in the Presidium of the Council of Ministers
last month revealed sharp differences over Gorba-
chev's effort to reduce mandatory output targets-so-
called state orders-for Soviet enterprises in the last
two years (1989-90) of the current five-year plan.
Although the debate has not yet been resolved, the
wide divergence of views that were expressed suggests
that considerable effort will be required to bridge the
gap between those who see such a reduction as
essential for the increased enterprise autonomy prom-
ised by Gorbachev's reforms and those who fear that
accompanying cutbacks in state-guaranteed supplies
could produce what one participant described as
"economic chaos."
An Abused Concept
The "state orders" concept was adopted as part of the
June 1987 planning reform as a way of distinguishing
between the mandatory production requirements of
the state, which were to be covered by state orders,
and the production of other goods and services, which
were to be less tightly controlled. The Presidium
meeting, conducted by Premier Ryzhkov, was held to
consider a proposed "interim provision" on compiling
state orders for 1989-90 that was drafted in response
to widespread complaints that the ministries had
abused the concept in this year's plan and were
continuing to dictate too many decisions to the enter-
prises. Many enterprises have complained that their
ministries are still demanding 100 percent of their
production, but the ministries have countered that
Gosplan is still demanding production output at the
prereform levels, which the ministries have claimed
leaves them no recourse but to demand the same of
their subordinate enterprises.'
The offending ministers were pointedly excluded from
the Presidium meeting. As one correspondent noted, it
' In one celebrated case, the "Uralmash" Production Association,
once headed by Premier Ryzhkov, succeeded in having its high
percentage of state orders reduced, despite loud objections from its
parent ministr man other enterprises, however, have been less
successful.~~
was "not without interest" that of the 23 speakers
(excluding Premier Ryzhkov, who presided), "only one
was a member of the government." The others includ-
ed enterprise and association directors, kolkhoz and
construction site managers, and economic experts.
25X1
Maslyukov's Proposal
Gosplan Chairman Maslyukov proposed that the fol-
lowing changes be made in state orders for the 1988
and 1989 annual plans:
? State orders would be determined by Gosplan-not
the ministries.
? The current overall proportion of state orders (80 25X1
percent of industrial production) would be reduced
by one-half to two-thirds.
? The number of centrally determined "success indi-
cators" would be reduced to one-sixth the current
level.
? Centralized planning of types of output-the assort-
ment plan-would be reduced to one-fifteenth that
of 1988.
Maslyukov made it clear, however, that state orders
would continue to cover 100 percent of production in
certain sectors that were essential "to satisfy public
needs," citing as examples consumer goods (with the
exception of the Ministry of Light Industry) and the
fuel and energy complex.
The Debate
Some speakers supported the effort to reduce the
proportion of state orders or possibly even eliminate
them. "Why not take the decisive step?" one partici-
pant asked. "Who are we afraid of-ourselves?" But
a majority of the enterprise directors in the group 25X1
expressed the fear that, without the supplies guaran-
teed by state orders, production at their enterprises
would suffer. Many cited difficulties in finding suppli-
ers when left to their own devices. For example, one
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~ecrer
director claimed that his production association had
contacted about 600 enterprises and the result had
been "hardly any orders at all." Most speakers advo-
cated a go-slow approach, arguing that enterprises are
still required to meet the high-growth targets of the
current five-year plan, that the wholesale trade sys-
tem intended to alleviate their supply problems is still
in the early stages of implementation, and that re-
forms designed to give them more authority to set
prices are still in the discussion stage. As one corre-
spondent put it, many directors "cannot yet conceive
of themselves in a milieu in which economic regula-
tors operate."
In general, the speakers' remarks reflected the under-
lying problems engendered by the incremental imple-
mentation of interdependent reforms and the decision
to tackle two of the most fundamental problems-
pricing and supply-only in the final stages. They also
underscored some major flaws in the reforms' design,
such as the attempt to reduce the ministries' authority
in day-to-day economic management while continuing
to hold them responsible for production, and the
decision to introduce those reforms while attempting
to adhere to taut five-year plan targets
Reform economist Leonid Abalkin decried those who
used the current five-year plan targets as an excuse
for inaction on the state orders problem, however, and
said there was no reason to set control figures "as if
the five-year plan will be fulfilled." Both he and the
other leading reform economist, Abel Aganbegyan,
conceded that the Gosplan proposal was a step in the
right direction but argued for a more fundamental
change that would redefine the mandatory state order
as a "voluntary contract" between producers and
consumers.z
' To illustrate their point about the producer-consumer relationship,
they said that it should not be Gosplan, but the Ministry of
Health-the consumer-that placed orders for medical equipment
The Golden Mean
In a nod to the economists, Ryzhkov noted that "we
do not work with scientists enough" but concluded
that "we acted correctly" in not immediately adopting
a document to cover the 13th Five-Year Plan (1991-
96) because so many of the participants were not yet
ready for the model proposed by Aganbegyan and
Abalkin. He instructed Maslyukov to consider the
arguments presented at the meeting and submit an
amended draft "in the near future." Ryzhkov's con-
cluding remarks suggested that the document to
emerge from that review would be a product of
compromise. According to one account, he instructed
those who were making the revisions to "select the
golden mean from the different and at times even
extreme viewpoints" and "enshrine that which would
be most in line with the complex conditions of the
transition period."
Ryzhkov appeared undaunted by the prospect of
resolving such differing views, however, and said that,
in addition to completing the interim provision, work
should be started on drafting a new state orders
regulation for the 13th Five-Year Plan-a move that
would formalize plans for further reductions in the
percentage of state orders. Reformers are hoping that
such reductions will be more palatable to enterprise
managers in the next five-year plan, when other
reforms designed to make the economy more "self-
regulating" are scheduled to be in place.'
'Although wholesale trade is not to be fully implemented until
1992, the State Committee for Material and Technical Supply has
25X1
25X1
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~ecre~
Easing the Antialcohol
Program: New Wine
in Old Bottles
According to a Central Committee member, the
Soviets have decided to ease up on the antialcohol
campaign introduced by Gorbachev in May 1985. The
campaign has caused widespread discontent among
consumers and has disrupted trade, agriculture, and
industry, particularly in Moldavia, Azerbaijan, and
Georgia, where viticulture and winemaking are im-
portant economic activities. Moscow now appears to
be allowing moderate increases in supplies of low
alcohol beverages such as champagne and beer. The
regime evidently intends to reduce retail prices for
some alcoholic beverages and allow a small increase in
the production of vodka and other hard liquor. How-
ever, supplies of low alcohol beverages are likely to
remain scarce for some time because many former
alcohol enterprises are now producing other goods.
Furthermore, given the present price structure and
the progress of retooling in the alcohol industry,
producers of vodka and spirits will have far more
incentive than producers of lighter products to in-
crease output.
Implementation ol'the 1985 Program: Going O.~`'the
Track
The antialcohol campaign created widespread discon-
tent in part because the program from the start went
beyond its original mandate (see inset).' The original
decree called for a reduction in the output of vodka
and spirits, fortified grape wines, and fruit and berry
wines, all of which were used primarily for heavy
drinking rather than for social occasions. Almost
immediately, however, Ministry of Trade officials
responded to the high-level pressure for sobriety with
teetotaling zeal. They not only slashed orders for
vodka, other liquors, and cheap fortified wines, but
also began to cut purchases of champagne, table wine,
and beer. These products had not been targeted for
reduction under the antialcohol campaign, but the
The Antialcohol Program
The legislation on the antialcohol campaign was
enacted in May 1985 and outlined a broad program
of measures to curb alcohol abuse in Soviet society:
? Beginning in 1986, the production of vodka and
spirits was to be reduced annually, and the output
ojfruit and berry wines was to be halted entirely by
1988.
? The production of nonalcoholic beverages and Jruit
products was to increase substantially.
? The number oI stores selling alcohol was reduced;
sales hours were shortened.
? The penalties for public drunkenness and.for illegal
production and sales oJalcohol were increased.
Supervisors were to be held responsible for the
sobriety of their employees at the workplace.
In addition, an August 1985 decree raised the retail
prices of vodka and spirits, cognac, ,fruit and berry
wines,.fortified wines, champagne, and beer. A
second price increase occurred in the summer of
1986. At that time, the average price of a half liter
of vodka reached 10 rubles.)
food industry cut production in response to the drop
in demand by retail trade organizations (see table 1).
This result contributed markedly to consumer dis-
satisfaction and social problems:
? The long queues to purchase even holiday staples
such as champagne have caused considerable popu-
lar dissatisfaction.
? The acute shortage of alcoholic beverages at state
stores and the very high prices have caused rapid
growth in widespread moonshining and even legiti-
mized the making and sale of moonshine in the view
of otherwise law-abiding citizens.
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~ecrei
Table 1
USSR: Production of Alcoholic
Beverages
Vodka products
(million dekaliters)
281.0
238.0
147.0
123.0
(annual growth, percent)
- 15.3
-38.2
-16.3
Cognac
(million dekaliters)
9.9
7.0
6.7
9.5
(annual growth, percent)
-29.3
-4.3
41.8
Fruit and berry wines
(million dekaliters)
1 13.0
70.0
15.1
0.8
(annual growth, percent)
-38.0
-78.4
-94.7
Grape wine
(million dekaliters)
340.0
265.0
141.0
147.0
(annual growth, percent)
-22.0
-46.7
4.3
Champagne
(millron bottles)
254.0
248.0
195.0
225.0
(annual growth, percent)
-2.4
-21.4
15.4
Beer
(million dekaliters)
654.0
657.0
489.0
506.0
(annual growth, percent)
0.5
-25.6
3.5
? Nondrinkers have felt the consequences of the cam-
paign because the diversion of sugar to moonshining
led to shortages, hoarding, and rationing in many
1988 that the loss in revenue from the turnover tax on
alcohol has exceeded 37 billion rubles in the three
years since the campaign was introduced. In addition,
in some areas, money usually spent on vodka re-
mained out of circulation, and the shortage of circu-
lating cash led to late payments of wages
Large Economic Impact in Southern Republics. In
the 1970s, Azerbaijan, Georgia, and Moldavia, which
account for half of Soviet grape production, experi-
enced a "wine boom." Many wineries, taking advan-
tage of the high profits and abundant raw materials to
produce large amounts of cheap low-quality wine,
became known as "factory-millionaires." Azerbaijan's
premier, addressing the Supreme Soviet in June 1986,
reported that employment in viticulture and winemak-
ing in Azerbaijan totaled 220,000 people (equivalent
to one-fourth of all agricultural workers in the repub-
lic). Farmers also cultivated grapes on their private
plots, where earnings from sales to the state often
exceeded their wages.?
The sudden cutback in retail trade orders for wine
caught the Caucasian republics and Moldavia by
surprise. Wineries were unable to sell much of their
production and were left with cisterns full of unpro-
cessed wine material. Before the antialcohol cam-
paign, Azerbaijan had funded half its 3-billion-ruble
budget from winemaking revenues. A 13 February
areas of the Soviet Union.
Retail trade organizations also suffered from the
sharp drop in alcohol production and sales. Although
the retail trade system was ordered to cut back
alcohol sales, the plan for the gross value of retail
sales, in which alcohol played a substantial role, was
not revised. Officials announced optimistically that
trade organizations were to meet their plans by
increasing sales of other consumer goods. When this
failed, the State Planning Committee (Gosplan) re-
vised the sales plan to exclude alcohol.
' Using expected store receipts and planned wage expenditures by
enterprises, Soviet financial authorities establish regional plans for
circulating cash. When store receipts fall short of plan, local
enterprises, which pay their employees in cash, are left without the
? Winemaking was often the only way to use grapes and other fruit
crops. Because of the shortage of refrigerated storage space and
unreliable agricultural transportation, fruit would often begin to
ferment before it could be loaded. Farms also me[ ambitious
procurement targets for grapes by harvesting them while they were
unripe and heavy. These sour grapes were unsuitable for direct
consumption, but they could be made into wine by using additional
ethanol and sugar. Labor costs for harvesting could also be
reduced-apples were simply shaken from the trees and bulldozed,
Growing Financial Difficulties. The state turnover tax
on alcohol sales provided substantial state budget
revenues, but a major impact of the antialcohol
campaign has been to cut this revenue source by an
estimated 30 percent.Z Gorbachev stated in February
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~ecrer
1988 Pravda article reported that half of Azerbaijan's
wineries were in debt to the state bank, crippled by
the cost of storing almost 2 billion rubles' worth of
unused wine materials, which, under existing law,
could not be discarded. Wineries have turned away
additional grape supplies, but procurement agencies
have been unable to pass this unexpected grape
surplus to the Soviet consumer because its perishabil-
ity caused the retail trade system to refuse to handle
most of it.
Adjusting Agricultural and Industrial Production:
Uneven Progress
The regime's plan called for the southern republics to
replant their vineyards with grape varieties suitable
for consumption as fresh fruit or raisins, without a
decline in total hectarage. Farmers, however, consid-
ered the procurement price for fresh grapes too low to
compensate for the extra labor needed to ensure a
fresh, ripe product. They began uprooting a substan-
tial share of the vines, replanting many fields with
other crops. According to the Soviet press, in Azerbai-
jan at least 35 percent of vineyards-covering 70,000
hectares-were uprooted during 1984-87. Only about
9 percent of this area has been replanted to table
grapes. Vineyards declined by 70 thousand hectares.
Private plantings dropped by half. A State Agroindus-
trial Committee (Gosagroprom) official stated in June
1988 that, for the USSR as a whole, grape hectarage
has fallen by 200,000 hectares or 15 percent of the
1984 total.
In industry, production of alcoholic beverages fell
sharply in 1986, but production of several types of
beverages increased in 1987, probably because alcohol
production remains highly profitable. Officials from
Gosplan and Gosagroprom were reprimanded in early
1987 for permitting overproduction of cognac, grape
wine, vodka, and fruit wines, even though production
of nearly all of these products remained substantially
below 1984 levels. Champagne and beer output grew
in 1987, evidently as part of an informal easing of the
campaign.
Many wineries found themselves unable to continue
operation without state loans. Some began production
of low-alcohol wines, and others began improving the
Soviet enterprise managers have sometimes been
characterized as unwilling or unable to change,
trained to depend on central authorities. The rapid
conversion of many alcohol plants to other forms oI
production suggests, however, that enterprise manag-
ers can show real initiative, given suffcient.freedom
and incentive, and that enterprises themselves can 25X1
make considerable changes on their own when.freed
from taut production plans. The Tula spirit associa-
tion,,1or example, faced with the immediate shut-
down oJsix orits IS plants, turned to Oblast planning
officials for ideaslor products that were needed
locally. The enterprise decided to produce fruit juice
concentrate and "health "beverages that required
equipment similar to that already in use. The associ-
ation acquired vats and pumpslrom a local chemical
combine, used its own engineering personnel to adjust
its equipment to handle new raw materials, and
obtained an additional bottling line.from a beverage
plant. The whole retooling process cost a mere
114,000 rubles, and enterprise officials report that
they are operating at a profit.)
quality of wines produced. The industry stopped
accepting grapes with a sugar content of less than 19
percent and increased output of vintage wines.
Some wineries have had to make a rapid conversion to
other forms of production simply to hold their labor
force and remain in operation. While planners in
Moscow were slowly developing a complex program
for retooling the alcohol industry as a whole, many
individual enterprise managers made immediate deci-
sions to change their production line. Without a
master plan for retooling, they were free to find their
own technical solutions and implement them rapidly.
In addition, they enjoyed a luxury almost unknown to
Soviet enterprises-the freedom to stop production 25X1
completely and use their labor force to retool existing
production lines (see inset).
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secret
In general, conversion of wineries and breweries to
production of nonalcoholic products has been compar-
atively easy to accomplish because of the similarity of
production and bottling processes. The most rapid
success has been achieved by enterprises that have
relied primarily on their own resources. In some cases,
the retooling process has been slowed by the usual
Soviet supply problems, such as shortages of equip-
ment, packaging materials, and preservatives.5
Reports in the Soviet literature suggest that retooling
in the vodka and spirit industry is moving more slowly
than that in wineries and breweries. The USSR's
approximately 350 raw spirits plants are located in
rural areas close to their sources of raw materials. The
distillery waste has been an important source of feed
for local livestock. Under the antialcohol campaign,
about 250 of these plants have had to find other
production work, while neighboring farms have lost a
feed source. As a result, many plants are scheduled
for conversion to the production of feed using a
process similar to distillation. This effort has been
held up, however, by opposition from feed officials in
Gosagroprom and by the irregular supply of raw
materials from farms
The retooling of alcohol plants has brought about a
substantial increase in the production of nonalcoholic
beverages, such as canned fruit juice and mineral
water, as resources and equipment have been trans-
ferred to their production (see table 2). Their output
has increased by more than half since 1984, equiva-
lent to almost 60 percent of the reduction in alcohol
production. Former alcohol plants have also begun
production of many food ingredients important to
both consumers and industry, such as starch, mayon-
naise, flavorings, aromatics, and kvas concentrate (a
beverage similar to beer with a very low alcohol
content). Traditional producers of beverages and other
food products have also increased production, taking
advantage of the sudden abundance of raw materials
freed from alcohol production.
` Bureaucracy has also proved an obstacle. An enterprise cannot
adopt a recipe for a new product or alter an existing one without the
approval of central authorities, who are usually slow to respond to
such requests. Finally, having produced a new product, enterprises
have sometimes found that industry and the retail trade are
unprepared to make use of or to sell it.
Table 2
USSR: Production of Selected
Food Products
Canned fruit juice
(million standard cans)
(annual growth, percent)
2,447.0
2,748.0
12.3
4,171.0
51.8
Dried fruit
(thousand tons)
57.0
61.2
78.6
(annual growth, percent)
7.4
28.4
Mineral water
(million dekaliters)
131.0
130.0
148.0
(annual growth, percent)
-0.8
13.8
Nonalcoholic beverages
(million dekaliters)
357.0
383.0
495.0
(annual growth, percent)
7.3
29.2
4,500.0
7.9
~,~
158.0
6.8
531.0
7.3
Outlook
Soviet statistics suggest that Moscow is easing the
antialcohol campaign by increasing supplies of light
alcohol products such as champagne and beer. In
addition, the 1987 plan called fora 46-percent in-
crease in cognac production. A Soviet source recently
told an Embassy officer that the regime is also
planning some increase in vodka production, a reduc-
tion in alcohol prices, increased sales outlets, and
longer sales hours. At the same time, there will be
tougher penalties for drunkenness, particularly at the
workplace. Easing up on the antialcohol campaign
would provide important benefits for the regime.
Revisions that now seem likely would:
? Give Gorbachev an option to reduce the state
budget deficit that would not involve reductions in
defense spending, investment, or retail food price
subsidies.
? Reduce consumer discontent by increasing avail-
ability of light alcoholic beverages but allow the
regime to continue efforts to curb alcohol abuse by
holding down production of vodka and spirits.
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? Strengthen the economies of southern republics,
particularly Azerbaijan, where the regime is espe-
cially concerned about unemployment and popular
discontent.
Increasing output of low alcohol beverages, such as
champagne and beer, will be a slow and uneven
process. Despite an order to increase beer production
in Moscow in 1988 by 20 percent, producers have
been unable to meet this plan because of a commit-
ment to manufacture nonalcoholic beverages and
because of the shortage of bottles created by the
increase in nonalcoholic beverage production.
On the other hand, enterprises formerly producing
vodka and raw spirits may find it easier to return to
alcohol production because of the slow pace of retool-
ing. After conversion, many were left with excess
capacity and are paying fines for leaving these re-
sources idle. They could easily resume production of
alcohol without substantial disruptions. In addition,
the high wholesale prices paid to enterprises give them
Excess capacity in the vodka and spirit industry,
together with the introduction of self-financing and
the high profitability of alcohol production, means
that keeping production of vodka and liquor down will
require continued pressure from the leadership. In-
creased supplies of vodka and other liquors, however,
are the best means for increasing budget revenues and
undercutting moonshiners, creating a dilemma for the
regime. In the end, if the Soviets are to achieve real
success in curbing alcohol abuse, they need to concen-
trate on cutting demand rather than supply. Lowering
demand requires a more sophisticated and thorough-
going campaign to educate the population concerning
the dangers of alcohol abuse, improved treatment of
alcoholism, and great expansion of alternative leisure
activities.
25X1
25X1
great incentive to do so.
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Notes
Soviet Attitudes Toward East German Repression of Domestic Dissent
Moscow has been generally supportive of East Germany's clampdown on internal
dissent, despite its potentially negative impact on Gorbachev's image-building
campaign in Western Europe and on Moscow's efforts to exploit improved intra-
German relations in its overtures to Bonn. Soviet reactions to East German
measures to counter domestic dissent suggest a continued willingness to allow
Chairman Honecker a great deal of latitude in handling that problem.
The Soviets have maintained strong and unwavering public support for East
Berlin's "legal right to maintain public order" in suppressing antiregime demon-
strations. Following the wave of arrests that occurred during the January 1988
demonstrations honoring the founders of the Communist party of Germany, for
example, Pravda noted:
An unprejudiced observer cannot doubt the correctness o./~the steps taken by
the GDR authorities, designed as they are to ensure security and public
order on the basis oj'law just as in any other sovereign state. And it is more
than obvious that the socialist gains o./~the GDR working people must be re-
liably protected against any encroachments no matter what.Jorm these take.
Moscow also sharply criticized Western accounts of the unrest as examples of
media sensationalism and anti-GDR propaganda aimed at thwarting the improve-
ment in East-West relations. Honecker's subsequent success in avoiding large-
scale antiregime activities during the traditional May Day celebrations and on the
35th anniversary in June of the 1953 Berlin uprising-largely through enhanced
security measures '-has probably increased Kremlin confidence in Honecker's
ability to maintain stability, at least in the near term.
Regime measures have included the short-term detention of possible "troublemakers" before public
events, a massive public security presence, the elicitation of church support for the discouragement of
public "provocations," the suppression of various church publications, the sudden rerouting of vehicular
and pedestrian traffic in locations where the possibility for disorder is the greatest, spot inspections of
vehicles and documents, and the sponsoring of "counterevents," such as rock concerts, to draw young
25X1
25X1
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Financial problems, along with enterprise managers unaccustomed to operating on
aself-financing basis, are hindering progress in implementing Gorbachev's reforms
in several branches of the ferrous metals industry. A recent article in Planovoye
khozyaystvo described the current situation:
Economic ir~/antalism, together with dependency instead oJ'creative explora-
tion, have up to now been typical ol~many enterprise managers. At a number
oJplants, cost accounting within the production entity has hardly been
restructured at all, and it has not been brought down to the individual
worker.
The article also noted that the growing frequency of appeals to the ministry for
help in dealing with financial difficulties-specifically, shortages of funds for
investment-indicates managers have not adjusted to the new economic conditions
and still face a legion of obstacles to rational economic decision making:
? The system of pricing remains ambiguous and does little to reduce waste or
promote financial responsibility. According to the Soviet press, for example,
rolled steel products that have been machined are less expensive than those that
have not. Heat-treated metal is priced lower at certain plants than raw metal,
and alloyed steels less than plain carbon steel.
? Many enterprises are unable to make the transition to cost accounting because a
number of products are manufactured at a net loss. The majority of Soviet
mining enterprises operate at aloss-primarily because of the deterioration of
operating conditions for extraction of minerals-but are being forced to carry
over old retooling plans into the 13th Five-Year Plan (1991-95) because of
insufficient investment resources.
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? Nearly all metal products are produced to satisfy state orders, permitting little
opportunity for enterprises to develop direct relations with customers. According
to the chief of the ferrous metals ministry's economic planning administration,
responding to state orders hampers the initiative and independence of enter-
prises, takes away their maneuverability, and makes it more difficult to obtain
additional profit and augment incentive funds.
As a result, many enterprises simply do not earn enough profit to be self-
supporting. To correct what the Planovoye khozyaystvo article called the "woeful
financial conditions" at a number of key enterprises, the ministry's leadership is
taking "emergency measures"-probably including subsidies-to help troubled
plants. Without genuine price reforms and a decrease in the share of state orders
for metal products, however, many enterprises will continue to appeal for ministry
subsidies and emergency aid to stay afloat.
Ministry of Railways Shifts Blame for High Accident Rate
On 25 June 1988 a Deputy Minister of Railways, G. Kozlov, held a press
conference to respond to growing media criticism of his ministry for at least one
freight-train and four passenger-train accidents since the beginning of this year.
One more passenger-train accident has occurred since the conference. He acknowl-
edged that negligence on the part of railway workers has been a cause but insisted
that other ministries are not supplying equipment to permit them to do their job
safely. He singled out the Ministry of Instrument Making, Automation Equip-
ment, and Control Systems for unwillingness to produce an effective automatic
braking system and the Ministry of Heavy and Transport Machine Building for
not producing enough rail inspection cars that can detect track problems.
To illustrate the magnitude of the problem, Kozlov supplied the following data on
the state of the railroad system's capital stock:
? The average breakdown rate of railcars has doubled in the last 10 years.
? Almost the entire 300,000 kilometers of track on the rail network is dangerous
because it fails to receive regular maintenance.
? One-fourth of the diesel locomotive fleet is obsolete, with an average age of 20 to
30 years.
? About 130,000 radios in locomotives and stations are obsolete and worn out
The Ministry of Railways used the press conference to shift part of the blame 25X1
away from itself and also to draw national attention to the growing need to
upgrade and better maintain its capital stock. Unless the railroads get the
equipment they need, the accident rate will continue to be high. Moreover, the
ability of the railroads to carry freight will continue to suffer. The machine-
building sector has not been supplying enough of the relatively new, powerful
locomotives, for example, that are needed to pull heavier trains. The railroads have
been relying mainly on increasing train weight to move more freight, but this
strategy may have reached its limit. (The average train weight fell slightly in 1987,
the first drop in more than 30 years.) Even if more of the locomotives were
available, however, poor track conditions would eventually limit the weight that
they can pull.
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.~c~aca
Viewpoint
This article was prepared by a contractor who relied exclusively on unclassified
literature. It was not coordinated within this Agency. The views expressed are
those of the author.
The Soviet Party Conference
in Gorbachev's Political Strategy
Heading into the Nineteenth Party Conference, M. S.
Gorbachev's performance as General Secretary had
given rise to serious questions. After three years, he
had not achieved quantitative growth, improvements
in quality were modest, modernization of industry was
well behind schedule, and little progress had been
made in reforming the command economy. The food
situation had not improved, as numerous speakers
complained at length. Several conference speakers,
including Leonid Abalkin and Boris Yel'tsin, indicat-
ed Gorbachev had contributed to these failings. Eth-
nic conflict had flared up in the Caucasus, the Baltic
republics, and Kazakhstan. Having aroused the coun-
try from lethargy, Gorbachev was making great de-
mands on working people, bureaucrats, and powerful
party officials, subjecting everyone to criticism from
all sides and threatening their long-established privi-
leges; yet he was conferring few material benefits to
compensate them for their increased effort and re-
duced security. Gorbachev was not personally respon-
sible for all his country's ills, of course, but his
economic policies were not working and his bold
encouragement of public opinion, while giving hope
for the future, was in the near term having unsettling
consequences.'
'The poor consequences of many of Gorbachev's economic policies
are generally acknowledged by him as well. In the West, however, a
teflon shield has prevented their reflecting on his competence in
economic affairs. That shield has been created by our admiration
for his political courage and decency, respect for the magnitude of
what he is trying to accomplish, and susceptibility to his rhetorical
talents.
Previous Soviet leaders also had imposed failed poli-
cies on the country, including J. V. Stalin in the early
1930s and N. S. Khrushchev in the early 1960s, but
they possessed substantial personal power with which
to protect their positions. Khrushchev, even so, was in
time overthrown. Gorbachev's personal power, unlike
Khrushchev's and Stalin's, is not based on effective
control of the party apparatus. His chief deputy in the
Secretariat, responsible for day-to-day operations, Ye.
K. Ligachev, heads an opposition faction. Other mem-
bers include V. M. Chebrikov, head of the KGB; V.
V. Shcherbitskiy, boss of the country's largest minor-
ity republic for 17 years; A. A. Gromyko, for a
quarter century head of the Foreign Ministry; and M.
S. Solomentsev, head of the Party Control
Commission.
Despite his failure to achieve a strong power base that
would enable him to control the Soviet political
machinery, Gorbachev had succeeded in winning
adoption of radical new programs. Appealing to the
Politburo's consensual view that the country had been
heading toward a crisis, he increasingly discredited
the existing institutions, blaming them rather than
individual leaders for the country's poor performance,
and taking successive failures to turn things around as
grounds for new, increasingly radical programs. But,
although he won their adoption, his failure to domi-
nate the party apparatus, and through it the regime's
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other institutions, prevented these programs from
being implemented as he intended. His decision in
June 1987 to convene the Nineteenth Party Confer-
ence sought, among other things, to remedy this
fundamental defect. In the intervening months before
the party conference met, the glaring gap between
policy adoption and implementation was further ex-
posed. Employing the loophole of "state orders," the
economic ministries subverted a critical new law that
was designed to liberate the enterprise from detailed
planning and continual ministerial intervention. The
law on cooperatives, designed to upgrade the role of
family contracts in agriculture and of small coopera-
tives in trade and consumer services was similarly
obstructed by the territorial party apparatus. As the
party conference drew close, its place in Gorbachev's
political strategy loomed large.
Under the guise of political reform, Gorbachev sought
a revolutionary rearrangement of political power,
designed both to liberate the energies of Soviet society
and to consolidate his personal control over the Soviet
political system. His strategy aimed to reduce sharply
the power of the party apparatus, not simply to
capture it as previous general secretaries had done,
and to emasculate the economic ministries. Much of
their power over the economy was to be transferred to
the productive enterprise itself, conferring on it the
autonomy needed to operate in the market place: to
acquire capital goods in wholesale trade; buy materi-
als from those who produced them; and sell its
products to those who consumed them. Territorial
Soviets, having been revitalized, would direct local
social and economic affairs. Which organs were to
perform what remained of central direction of the
economy was less clear, but the Council of Ministers
and Gosplan presumably would continue to operate,
under the tight control of a permanently operating
legislature.Z
Gorbachev also sought to acquire personal control of
the regime's political machinery at the expense of the
collective Politburo, the regime's supreme policy-
making organ. Heretofore, a leader had achieved
Khrushchev previously had gravely weakened the economic minis-
tries for a time, not with the aim of liberating the production
enterprise, but to transfer economic power to a strengthened party
apparatus.
personal dominance by making himself master of the
Politburo, purging it of opponents and subordinating
its remaining members, while preserving its central
place in the system. As his intention belatedly
emerged at the conference itself, Gorbachev evidently
meant to bypass the Politburo, transferring much of
its power to a state office, Chairman of the newly
established permanently operating Supreme Soviet.'
By acquiring far-reaching Constitutional authority
while retaining the office of general secretary, Gorba-
chev would at once obtain the personal power needed
to advance his social revolution and establish an
institutional basis for the personal authority of his
successors.?
The outline of Gorbachev's strategy as sketched here,
although not always the means by which he sought to
realize it, emerged gradually during 1987 and more
particularly in the months and weeks before the party
conference opened. Its general features (although not
all its details) have strong support in the intellectual
class, in much of the central press and the scientific
community, among small ethnic minorities who hoped
to improve their situation, and among some active and
ambitious managers and administrators who sought to
limit the party's interventions in their conduct of
affairs. His support within the provincial party appa-
ratus is limited and for his own part he seemed
lacking in respect for its members' competence and
capacity. Gorbachev's support among ordinary work-
ers may initially have been strong, but it appeared to
erode as his policies imposed sacrifices in the form of
labor discipline and reduced alcohol consumption,
while conferring few material benefits.
The forces opposed to Gorbachev's strategy, since
they have failed to prevent adoption of Gorbachev's
radical programs, have perhaps been underestimated
' Otherwise, why not be sa[ished with the existing of3~ice of
Chairman of the Presidium of the Supreme Soviet, as Brezhnev,
Andropov, and Chernenko were?
? Gorbachev's quest for power is not motivated simply by personal
ambition but is necessary to effect his social revolution. Neverthe-
less, his authoritarian tendencies have been manifest in imperious
personal interventions at party meetings and even in diplomatic
negotiations with his peers.
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secret
in the West. The main strength of the Ligachev
faction is in the provincial party apparatus (including
its press organs), as well as in the political police, and
in the Ukrainian Republic. The economic ministries
perhaps also look to it for support against Gorbachev's
decentralizing policies, as do elements of the military
concerned about the resource implications of the
doctrine of "reasonable sufficiency." Russian nation-
alists among the creative intelligentsia may also favor
Ligachev, who has cultivated their support.
The strength of the Ligachev faction was manifest in
pre-conference maneuvering in the Yel'tsin affair (fall
1987), the Sovietskaya rossiya affair (early spring
1988), and, most particularly in the election of dele-
gates to the party conference, which raised loud
complaints among Gorbachev's supporters. Almost
one-third of the 5,000 delegates were professional
party workers, that is, members of the party appara-
tus, and their sentiments were expressed by many of
the speakers, as well as in the audience's reactions.s
They supported attacks on journalists and the central
press and on intellectuals, as well as praise of the
party apparatus itself, of Russian achievements, and
of the regime's historical accomplishments. Gorba-
chev himself found it expedient to temper his defense
of the practice of glasnost by the central press,
emphasizing repeatedly that it must become more
responsible.b His proposal that territorial party first
secretaries head the corresponding local Soviets,
which is inconsistent with his call for liberating the
Soviets from party domination-presumably it was
imposed on him by the Politburo-was supported in
the speeches of party officials, but opposed by intellec-
tuals among Gorbachev's advocates.
Gorbachev's inability to control the selection of con-
ference delegates points up a vulnerability in his
strategy. He evidently seeks to deprive the party
apparatus of much of its power of appointment,
fostering instead competitive, multicandidate elec-
tions to choose delegates, representatives, and offi-
cials. But if the party apparatus can manipulate these
elections it may be able to impose its control even
without the existing nomenklatura system.
An extensive confrontation of the opposing Politburo
factions at the party conference was obviated by
restricting Politburo access to the podium. Only Gor-
bachev and Ligachev spoke, but they left little doubt
of their mutual opposition by striking indirect blows
at each other, employing esoteric communications and
surrogates. Gorbachev used his report on the opening
day to confirm widespread rumors linking Ligachev to
the Andreyeva affair. After calling the audience's
attention to Andreyeva's letter by speaking of people
who attack perestroyka as "an erosion of principles,"
he focused his criticism on "someone's ...personal
ambitions," a reference not to the lowly Andreyeva
but to Ligachev. Why only Ligachev among Politburo
members was given the opportunity to comment on
Gorbachev's report is not altogether clear, but it may
have been thought necessary to allow him to respond
to Gorbachev's indirect attack, or to Yel'tsin's explicit
attack, or it may have followed from the fact, which
Ligachev announced in his speech, that he is responsi-
ble for the Secretariat's day-to-day operations.
In any case, Ligachev used the occasion to respond
not only to Yel'tsin, but to Gorbachev as well. He also
restated his doubts about Gorbachev's version of
perestroyka, and more particularly about Gorbachev's
criticism of Stalin and his institutional heritage. As in
the Andreyeva affair, he conveyed sharp criticism
through a surrogate, saying, "I fully and wholly
support" the speech of Bondarev in regard to Stalin.
According to Yu.V. Bondarev, "there is no need for us
to destroy our past to build our future," a fair
description of what Gorbachev is in fact doing. Liga-
chev also linked Gorbachev to the excesses of
glasnost.'
A central theme of Ligachev's speech was his defense
of the party apparatus (particularly the central appa-
ratus) against Gorbachev, who threatens its economic
and nomenklatura powers, and against Yel'tsin and
elements of the central press, who have sharply
' Some newspaper editors took advantage of the "respect and trust
shown them by the Central Committee and the general secretary of
the Central Committee ... to evade party control." These editors
had pursued "enemies of perestrot~ka" (a sin of which Ligachev has
been accused).
` Of this group, 827 were territorial party secretaries; 762 were
party secretaries in production party organizations, all of whom
presumably received at Icast part of their income from the party.
'' Scc his interventions in the speech by Ulyanov.
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criticized its privileges as well as its functions. Liga-
chev began this discussion by remarking that the
Politburo had entrusted him with responsibility for
day-to-day running of the Secretariat, which, of
course, made him a natural defender of the interests
of the party apparatus. He then asserted that the
party apparatus exacts discipline, but in a comradely
spirit; that the central party apparatus is in close
contact with provincial officials and workers to pro-
vide necessary assistance; that its members work
excessively hard; and that party officials are not
overcompensated, as some have charged, but rather
need improved benefits to prevent deterioration in
their quality. "The party worker has one privilege-to
be at the front, to fight for the party's policy, and to
serve his people with faith and truth." Does such an
admirable institution deserve to be weakened? Even
while pursuing his quarrel with Gorbachev and his
supporters, Ligachev denied that there was a split in
the leadership or that there was any need to seek out
enemies of perestroyka: "We are all deeply commit-
ted to the policy of perestroyka."
Finally, Ligachev defended his faction against an
open attack by a previous speaker who appeared to
have been prompted by Gorbachev. V. I. Melnikov
insisted that figures who had actively supported the
stagnation policy (under L. I. Brezhnev) could not
remain in the central leadership. When Gorbachev
intervened to ask Melnikov to name names, he re-
sponded: "Mikhail Sergeyevich knows, I think," im-
plying that Gorbachev could have anticipated who
Melnikov's targets were.g He then specified Soloment-
sev and Gromyko, along with two nonmembers of the
Politburo. Ligachev's rejoinder was sharp and telling.
There was a real danger in March 1985 that Gorba-
chev would not become general secretary.' That he
was chosen was due "to the firm stand taken by
Solomentsev and Gromyko," (that is, Melnikov's vil-
lains), to whom Ligachev added Chebrikov, a third
member of his faction, "and a large group of obkom
first secretaries," that is, the very group that Gorba-
chev was trying to deprive of power. Besides offering a
powerful defense of his faction against the Melnikov-
Gorbachev attack, Ligachev's allusion to the anxious
"This passage was omitted from the Pravda version.
"This contradicts the view of many Western observers that Gorba-
chev was an agreed choice even before K. Chernenko died.
days of March 1985 may have had further signifi-
cance: since Gorbachev needed these men's support in
order to come to power, if they were to turn against
him he might lose that power. This implicit assess-
ment of the strength of the opposing forces is doubt-
less biased, but it may be no further from the truth
than the notion that Gorbachev is a secure and
unchallenged leader.
As is apparent from this account, Gorbachev, despite
his strong personal influence, did not control the party
conference. Many speakers took advantage of glas-
nost to speak without fear, not simply toeing an
official line but asserting their own views, which
frequently diverged from Gorbachev's.'? The audien-
ce's response to the speakers also was not closely
orchestrated and did not always favor Gorbachev's
program. On the other hand, the decisions taken by
the conference appeared to be largely under control,
but by the entire Politburo, not by Gorbachev alone.
Its resolutions were evidently drafted by the central
apparatus, worked over somewhat in committee, and
adopted hurriedly by the conference as a whole.
Gorbachev once more won adoption of much of his
program, including a statement that the nomenkla-
tura approach to cadres is becoming obsolete and a
call for reorganization of the party apparatus in the
very near future." Yet, having won adoption of these
decisions to redistribute power, he may at present lack
power to implement them.
The strength of Gorbachev's opposition as revealed at
the party conference is a serious obstacle. His efforts
to weaken the party apparatus doubtless will be
resisted by the Ligachev faction, and, in any case, its
determination to protect its institutional power and
material privileges might be sufficient even without
strong Politburo support. The economic bureaucracy,
while more vulnerable, is similarly determined to
10 They were more insistent on the excesses of glasnost and the
shortages of local consumer goods, for example, than Gorbachev
would have preferred.
" The resolutions failed to specify the powers of the chairman of the
Supreme Soviet that he had enumerated in his report, however.
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defend itself. On the other hand, the thirst for power
of those whom Gorbachev intends to benefit from the
new regime is doubtful. Economic enterprises may
find autonomy and its heavy responsibilities unwel-
come, while the new permanently acting Supreme
Soviet (and its projected office of Chairman) is as yet
an imaginary body, possessed of a merely ghostly will.
The Ligachev-Gorbachev encounter at the party con-
ference, while it revealed how acute their rivalry is,
need not portend an imminent confrontation to decide
who will prevail. Ligachev seeks to slow the pace of
perestroyka and to limit its objectives. He wants only
to solve the USSR's current economic and social
crisis, not to transform the country in accordance with
some new vision of socialism.'Z Despite Gorbachev's
allusion to his ambition, Ligachev does not appear
currently to aim at replacing Gorbachev, recognizing
perhaps that this is beyond his reach. In any case, his
past behavior suggests that he is content to use his
present position to limit and obstruct Gorbachev's
program and does not seek supreme office to further a
program of his own. Gorbachev, on the other hand, is
not satisfied with the present arrangement, but he
appears to lack the power to remove Ligachev and his
followers. Skirmishing of the two factions may contin-
ue for some time.
Gorbachev's tenure as general secretary in the next
several years will not depend solely on the country's
economic and social performance. Only if economic
and ethnic problems threaten to get out of control and
endanger the regime, probably, would they threaten
his position. On the other hand, the fate of his
" Bondarev, whose discussion of Stalin accorded with Ligachev's
views, may have spelled out Ligachev's views on this matter also:
"Could our perestroyka be compared to an aircraft that has taken
otT without knowing if there is a landing strip at its destination?"
There is "only one way we can ensure our invincibility: through
agreement on the moral objective of perestroyka: in other words,
perestrwka for the sake of material prosperity and spiritual
unification of all." That is to say, agreement is lacking on
Gorbachev's notion that perestroyka should create a new form of
socialism.
political strategy is likely to have a decisive bearing on
his continuation in office. If Gorbachev accommo-
dates the resistance he is encountering, his opponents
may in turn be reconciled to his reformist eccentrici-
ties. But if he persists in trying to redistribute pow-
er-and especially if, despite his dubious prospects, he
appears to be succeeding-his opponents might well
be provoked into trying to unseat him."
The long-term prospects of perestroyka are of course
uncertain. Competitive multicandidate elections and
the deepening of glasnost could change the character
of the regime, but the fragility of glasnost is apparent
from the response to the Andreyeva letter, which had
an immediate chilling effect on the press. Economic
reform is unlikely to achieve the full extent of marke-
tization that Gorbachev seeks, but the command
economy was so inefficient that the reformed system
that is evolving may be a substantial improvement.
An opening of the Soviet system might result from a
protracted struggle between Gorbachev and Ligachev,
as the two factions reached out for support to informal
associations, thus undermining the party's monopoly
of political activity and widening the political arena.
The most far-reaching transformation of the Soviet
Union might result from Gorbachev's success in redis-
tributing power, but the prospects for this, as noted
previously, are poor. Alternatively, burgeoning de-
mands on the present system from all quarters may
exceed its capacity to accommodate them and could in
time produce serious instability.
Despite the country's descent into economic and social crisis,
Brezhnev held power until his death: Khrushchev, too, held power
despite the manifest failure of most of his policies, until his
unsettling reorganizations of the party apparatus turned it against
him.
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