MEMO TO RICHARD KAUFMAN FROM (SANITIZED)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP92M00732R000300110003-0
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 55
• Document Creation Date: December 23, 2016
• Document Release Date: April 16, 2014
• Sequence Number: 3
• Publication Date: June 26, 1989
• Content Type: REPORT

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26 JUN 1939
,\ CENTRAL INTELLIGENCE AGENCY
Office of Congressional Affairs
Washington, D.C. 20505
Telephone: [phone]
TO:
Mr. Richard Kaufman
Joint Economic Committee
United States Congress
Washington, D.C. 20510
Dick:
Per your request.
Enclosure
House Liaison
FORM,33OBSOLETE
2-86 i .0
maioNs.
Distribution:
Original Addressee w/enc.
1 - OCA Record w/enc.
1 - MN Chrono w/enc.
(40)
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STAT
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RECOMMENDED FORMAT FOR INTERNATIONAL REPORTING OF MILITARY EXPENDITURES
Resource
Costs
Force groups
Strategic
forces
(I)
General
purpose
forces
(2) (3)
(4) (5)
Central support.
administration
ond command
(6) (7)
Para-
military
forces
Civil Military
defence assistance
(8) (9)
I. Operating costs
I. Personnel
(a) Civilian
(b) Conscripts
(c) Other military
2. Operations and maintenance
(a) Materials for current use (purchases of food,
clothing, petroleum products, training mate-
rials, medical materials, office supplies and the
like)
(b) Maintenance and repair
(i) Contract services for repair and mainte-
nance of equipment and facilities
(ii) Purchases of parts, materials and tools for
repair and maintenance of equipment and
facilities
(c) Travel expenses, postal charges, printing ex-
penses and payment for other current services
(d) Real estate rents
11. Procurement and construction
I. Procurement*
(a) Aircraft and engines
(b) Missiles, including conventional warheads
(c) Nuclear warheads and bombs
(d) Ships and boats
(e) Tanks, armoured personnel carriers and other
armoured equipment
(I) Artillery
(g) Other ground force weapons
(h) Ordnance and ammunition**
(i) Electronics and communications
(j) Vehicles
(k) Other
2. Construction
(a) Airbases, airfields
(b) Missile sites
(c) Naval bases and facilities
(d) Electronics, communications and related struc-
tures and facilities
(e) Personnel facilities
(f) Medical facilities
(g) Warehouses, depots, repair and maintenance facilities
(h) Command and administration facilities
(i) Fortifications
(j) Shelters
(k) Other
Research and development
I. Basic and applied research
2. Development, testing and evaluation
Subdivision of general purpose forces
Cols. (2) Land forces
(3) Naval forces
(4) Air forces
(5) Other combat forces
Subdivision of central support. administration and command
(6) Central support (supply, maintenance
construction, training, medical, etc.)
(7) Central administration and command,
including intelligence and communications
Subdivision of military assistance
Cols. (10) Contributions to allied forces and infrastructure
(II) Military assistance to allies and non-allies
? Subdivide by
Domestically produced vs. imported:
Ge
Source 0NA-ea Waitonsl)itavostbouit4-qt Roc erk O
. s! rkix- -4r 9
6
) SaemtAwawt,UovAmtoji
Allocation to forces vs. stockpiled. ? ,
11.4"41 'Corin COIX\ 6tt Affairs, Vd 19+43, Ow, My )199-1,1?? 4215-42-1.
?? Excluding elements in (brand (r) above.
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26 June 1989
Richard Kaufman, General Counsel
Joint Economic Committee
Washington, D.C. 20510
Dear Mr. Kaufman:
Attached are our responses to your questions of
20 April 1989. Although we have not formally coordinated our
replies with the Defense Intelligence AgencY, they have seen a
draft and raised no-objections. Please let me know if I can be
-of further assistance.
Sincerely,
George Kolt
Director of Soviet Analysis, DI
Enclosure
STAT
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Question 1: Your report concludes that Gorbachev's recent policy shifts have
the potential to advance his efforts to revitalize the economy. Could it not
also be concluded that both the leadership and the public seem unwilling to
pay the price of real reform and are therefore backing away from it? Is it
possible that perestroyka is losing its momentum and comprehensiveness and
may suffer the same fate as other attempts by Communist countries to reform
gradually?
Answer.: Basic reforms of planning and management attempt to change a
system that has been firmly in place for more than 60 years. Specifically,
they:
go against the grain of top-down management that has
characterized the "command" economy.
? threaten power and privileges of the party and government
bureaucracies.
? undermine deeply held ideological precepts that represent a
conscious decision by successive regimes to choose an egalitarian
and ordered society over economic efficiency.
This is a monumental task, and it would be unrealistic to believe that the
regime and public could agree to effect this program easily and quickly.
Gorbachev himself has admitted that he underestimated how difficult it would
be. The economic reform program, therefore, is likely to proceed in fits
and starts.
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The danger is that the longer the implementation period, the greater the
chance that the opposition will coalesce and block further change. The
postponement of retail price reform, for example, decreases the chances for
a bold reform that slashes subsidies and makes dramatic changes in the
prices of basic goods and services. Continued growth in democratization
makes public opinion a force to reckon with, and the Soviet electorate is
unlikely to lend enthusiastic support to economic policies that threaten the
social contract. It is possible, therefore, that the momentum of the reforms
is being lost and that without prodding from a united leadership these hard
decisions will continue to be avoided.
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Question 2: Last year, your report set out the signs to look for to measure
the progress of Gorbachev's reform program. These included a leadership
decision to take the long view, to wait for economic gains in the 1990s, and
to realize that short-run disruptions are a necessary part of the reform
process. Another sign to look for was a leadership commitment to elements
of the reform package, such as price reform. By the standards you gave
us last year, should we conclude that progress has slowed or stopped?
What signs should we look for in the future?
Answer: Judged by our previous set of progress indicators, the reforms
appear to be in serious trouble today. The leadership is unwilling to
tolerate the disruptive effects of reforms in the short-run, and it has not
given the go-ahead to vital parts of the original package such as price
reform. This time, however, the reform schedule has been thrown off
course by a very different set of obstacles than in the past. Previous
reforms have been derailed largely by bureaucratic foot-dragging, a
piecemeal approach to reform, internally inconsistent reform legislation, and
a lack of leadership support. Although these problems have to some degree
impeded the progress of the current reforms, the most serious obstacle is of
more recent vintage. Because of the leadership's growing concern over the
large budget deficit, inflationary pressures and the lack of progress in
consumer welfare, the leadership has pulled back on those reforms that
threaten to exacerbate these fiscal and consumer dilemmas. Until the regime
regains control over these problems, it will not be ready to restart
implementation of reforms detrimental to the consumer.
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All reforms are not dead, however. The very factors that have stopped
some reforms give new impetus to others. The regime's fiscal problems, for
example, are a catalyst for:
a more serious attempt to shut down unprofitable enterprises and
farms or turn them over to cooperatives so that state subsidies
can be cut.
a break-up of monopoly producers in order to encourage more
price competition.
the development of financial markets to sop up excess purchasing
power.
the devolution of economic control from the central government to
regions in an attempt to reduce central budgeta_ry allocations.
Similarly, the new turn toward the consumer gives added impetus to:
reformist solutions to the food problem. The tight budget
forecloses the traditional solution to the farm problem--increased
investment allocations--and increases the chances for reforms
that harness private initiative such as land leasing.
? expansion of private and cooperative businesses in order to
increase the availability of consumer goods and services.
? reforms that challenge traditional concepts of socialist
property--for example, the sale of stocks and bonds and state
housing to individuals.
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Over the next several years we should look for progress in these new
areas. If gains are actually made, a better foundation would be laid for the
regime to restart the stalled reforms in the mid-1990s.
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Question 3: What will be the rate of growth of Soviet trade with the West
and with the United States over the next five years, and how will the
composition of hard currency exports and imports change?
Answer: Hard currency trade is volatile, and can fluctuate widely depending
on the world prices of such goods as oil, gold, and other raw materials, the
size of the Soviet grain harvest, and the value of the dollar vis-a-vis the
ruble. For example, total hard currency trade turnover plummeted from
around $60 billion in 1983-84 to just $48 billion in 1986 due largely to falling
oil prices, a depreciating dollar, and markedly lower agricultural import
bills. Renewed grain purchases coupled with imports of Middle Eastern oil
that were reexported pushed trade above the $61 billion mark last year and
it could go a bit higher this year. But Moscow's inability to alter
significantly the composition of its exports to include a larger share of
manufactured goods and a smaller share of energy and raw materials is likely
to result in only a slight growth in hard currency exports from the current
level of $31.2 billion. (Of course, rising oil prices would lead to faster
export growth.) Given the constraints on export revenues and the
leadership's current aversion to large-scale borrowing, import growth is also
likely to be modest over the next five years. A further worsening of
domestic economic conditions, however, could induce Moscow to step up
markedly imports of food and consumer goods, even at the cost of increased
indebtedness. In any event, Moscow probably will at least alter the
composition of imports to include a larger share of foodstuffs and industrial
consumer goods over the next year or two.
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Trade with the US is particularly susceptible to wide swings because of the
dominance of grain in US sales to the Soviet Union. In 1988, US exports
doubled to $3 billion due to a surge in Soviet purchases of wheat and corn,
and grain sales will remain high again this year. Soviet purchases of other
goods, primarily chemicals and small amounts of machinery, will probably
grow marginally above the current levels of around $550 million. Similarly,
US purchases of Soviet products--mainly metals, chemicals, and oil products-
-are expected to grow at only a modest pace from the current level of about
$500 million.
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Question 4: Gorbachev says he wants the USSR to integrate with the world
economy. Do you see any signs of that happening and, if it does, is it a -
good thing for the West?
Answer: Gorbachev has already undertaken a number of moves to help make
the Soviet Union a bigger player in the world economy. For example,
Moscow has succeeded in gaining a foothold in a number of small
organizations such as the Asian Development Bank, the Pacific Economic
Cooperative Council, and the UN-sponsored Common Fund for Commodities,
and it has expressed its desire to join the GATT. The Soviets have also
taken actions to expand bilateral trade contacts with a host of countries,
including South Korea, which--until recently--they only traded with via
third parties. Moscow is also working aggressively to expand its world
banking and commodities trading networks. Such moves will have only
limited payoffs, however, as Moscow will not become a substantially bigger
player in world markets until domestic reforms needed to improve the
competitiveness of Soviet products take hold.
If Moscow becomes a bigger player and, specifically, an active participant in
international economic organizations, it will have new forums from which to
press its causes and seek divisions within the Western alliance. Its desire
to gain economically from these organizations, and from Western trading
partners generally, however, would encourage constructive participation. In
addition, the Soviets are unlikely to accrue sufficient economic strength to
dominate international economic policy, or even sufficient market power to
influence substantially the price or availability of critical commodities, other
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than possibly a few strategic metals, such as chromium and platinum-group
metals.
_
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Question 5: The chart in the report on the Soviet government deficit shows
that large increases occurred in 1986, the first full year under Gorbachev:
Explain why this problem got so much worse and whether Soviet figures
agree with your own.
Answer: The large increase in the deficit in 1986 was due to a surge in
government spending that year accompanied by a slight decline in overall
revenues. Expenditures rose sharply because of Gorbachev's ambitious
investment program--state capital investment increased 9 percent in 1986.
An increasing consumer subsidy bill, continued growth in defense spending,
and unanticipated costs such as the Chernobyl' cleanup also contributed to
the increase in spending. At the same time, revenues were curtailed by tax
losses of about 10 billion rubles from the reduction in alcohol sales due to
the antialcohol campaign and a further loss in revenue because of the
collapse in world oil prices in early 1986 and the subsequent decision- to
reduce imports of highly taxed consumer goods. Until the fall of 1988,
Soviet officials maintained that the state budget was in balance. While they
now admit the deficit is a severe problem, they have not yet released
specific deficit figures for years prior to 1989.
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Question 6: Your report discusses inflation but does not contain an estimate
of how high it is. What are your estimates of consumer and producer price
increases for each year since 1980?
Answer: Soviet officials openly acknowledged for the first time last year the
existence of inflation. Although official indexes indicate that retail prices
have been generally stable, some government officials in the USSR have
admitted that these indexes are unreliable, Some Soviets have even
published their own estimates:
?
?
According to a recent article in the Soviet newspaper ?
Ekonomicheskava Gazeta, the annual rate of inflation was 1.6
percent during 1981-85, 3.0 percent in 1986, 3.1 percent in
1987, and 4.1 percent in 1988.
Finance Minister Gostev, in a press statement earlier this year,
put the rate of inflation at 2-4 percent.
It is difficult to evaluate these estimates because the methodologies used to
calculate them are unknown. While we believe inflation exists in the USSR
and has gotten worse in recent years, we think it unlikely that any of the
figures cited in the Soviet press are more than rough "guesstimates."
The CIA constructs its own retail price index using data on the total value
of retail and collective farm sales published in Soviet statistical handbooks.
These estimates indicate an acceleration of inflation in the retail prices of
consumer goods since 1985 (see table), with retail prices increasing by over
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Average Annual Inflation, Percent
1981-85 1986-88
Retail prices of
consumer goods
2.1
3.2
Producer prices of
industrial output
3.6
1.2
Producer prices of
agricultural output
5.3
1.1'
a Average for 1986-87; data on agricultural output in current prices are
not yet available for 1988.
5 percent last year . A principal reason for the worsening inflationary
pressures is the huge budget deficit which has developed since 1986,
resulting in excessive amounts of money being pumped into the economy.
High levels of investment and defense spending, for instance, have injected
puchasing power into the economy without increasing supplies of consumer
goods, or--even when investment has been channeled to consumer industries-
-done so only after a lag of some years. Similarly, under new reform
measures, wages have been allowed to increase much more rapidly than
worker productivity.
In addition, as Gosplan has relaxed its control over the detailed production
targest handed down to individual enterprises, they have found ways to
increase their profits by producing more higher priced items. Children's
clothing and items such as toothbrushes, for instance, generally are in short
supply. The problem, as the authorities have found, is that there is no
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alternative mechanism such as meaningful prices to guide enterprise decisions
in a period in which central planners' control of enterprise decisions has
been reduced.
In contrast to rising retail prices, the inflation rates for industrial and
agricultural producer prices have not risen, however?largely because the
1981-85 estimates reflect major official increases in these prices in 1982 and
1983, respectively. We believe that inflation in most of the Soviet economy
was faster in 1988 than in 1986-87, but this view is tentative because only
preliminary data are available for last year.
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Question 7: You discuss the cut in investment and the shift in emphasis
from industry to consumer goods. Does this indicate that the industrial
modernization program has been put on hold? What are the consequences of
the new investment strategy for defense?
Answer: Financial disequilibrium and higher priority for the consumer have
relegated the industrial modernization program initiated by Gorbachev in 1985
to a somewhat lower place on Moscow's agenda. In October of last year, a
senior machine-building official publicly stated that it was necessary to
forsake attempts to improve all of civil machine building immediately because
there simply were not enough resources. Moscow is not abandoning the
modernization program, however, but is taking steps to refine and refocus
it. Since last July, Moscow has exerted more centralized control over
technology policy and concentrated resources on only the most important new
technologies--particularly in the area of -consumer welfare. Moreover, Soviet
planners have been directed to develop a comprehensive plan by this summer
to radically improve machine-building's technological level during the 13th
FYP beginning in 1991.
Over the next few years a scaling back of the modernization program
probably could delay the renovation of some defense industrial factories. At
the same time, however, the planned cutbacks in weapons production and
conversion of some defense industry capacity to civil uses will reduce
somewhat the requirements for modernizing weapons plants.
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Question 8: In 1975, Brezhnev changed the investment strategy by
substantially slowing the rate of growth. The hope was that investment
resources would be used more efficiently. But the plan backfired and the
whole economy slowed down in the late 1970s and early 1980s. Is it possible
that the new investment strategy might also backfire?
Answer: The emerging policy of slower growth of investment may again fail
to improve efficiency in the use of investment resources and could contribute-
to significant industrial supply bottlenecks as in the early 1980s. A
reduction of several billion rubles out of a total investment level of over 200
billion rubles per year clearly does not have to lead to bottlenecks,
however, if the right decisions are -made about where to invest and where to
cut. The cutbacks currently planned appear to be more selective than
those in 1975 turned out to be, with large scale infrastructure projects
bearing the brunt of the reductions. Thus, the reductions may prove less
disruptive than the earlier investment slowdown.
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Question 9: How does the new investment strategy affect sectors such as
energy, transportation, and agriculture? Will they receive the same relative
share of investment resources that they have been receiving, and, even if
they do, will their activities have to be curtailed if the absolute amounts of
resources are reduced?
Answer: The new investment strategy involves a reshuffling of investment
priorities to favor consumer goods production and housing in the context of
an intended cutback in state investment overall. Nevertheless, given the
economy's vital need for energy and increasing investment requirements in
that sector, the share of energy investment almost certainly will continue to
increase. Plans announced last year to invest large sums- in rural road
construction and the need to modernize the railroad system suggest an
increasing share of investment resources for transportation, but these plans
could be stymied by--resource constraints with resulting slow improvements at
best. The share of investment going to state' and collective farms is likely
to contract, given the intense criticism this sector has come under in the
last year for wasting resources. Moscow is counting on agricultural reform
for production increases. At the same time, investment for storage and
processing of agricultural products is slated to increase. In any case, if
the absolute amount of total state investment is reduced and decisionmaking
decentralized, there will be much pulling and tugging among competitors for
the diminished resources available, and Moscow may have difficulty making
its Priorities stick.
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Question 10: Some economists view the postponement of price reform as very
discouraging and a sign that fundamental and systemic reform may not
occur. What is your view?
Answer: Price reform is the linchpin of all other reforms, and the regime
must ultimately confront this issue. The sensitivity of budgetary and
consumer problems is the ostensible reason for postponing price reform, but
another excuse probably would have been found to avoid the bold sweeping
transition to market-based pricing that the reformers advocate. The regime
fears the short-term disruptions resulting from such a radical price reform
.and is more likely, to change the price system incrementally. Even these
incremental changes are being delayed--wholesale price reforms have been
postponed from their 1 January 1990 implementation date, with no indications
of when they will occur.
The postponement of retail price reform has far-reaching consequences,
illustrating how crucial price reform is for the success of Gorbachev's entire
reform program:
? Artificially low prices for consumer goods mean queues will
persist as will rationing, muting the economic impact of a host of
reforms based on raising productivity through stimulating
workers' interest in earning higher income.
Without the incentives and penalties inherent in retail prices set
by market conditions, neither the reform of supply nor the
reforms designed to make enterprises more responsive to
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customers and accountable for their performance will reach their
potential.
? Burdensome state subsidies will make reducing the budget deficit
harder.
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Question 11: The report discusses Gorbachev's announcement that defense
spending will be cut by 14.2 percent. Assuming that it is done this year,
how would it translate into rubles and dollars, and what would the level be
after the reduction?
Answer: In a recent announcement before the Congress of People's Deputies,
Gorbachev stated that Soviet defense spending for 1989 was 77.3 billion
rubles and indicated that the savings from a 14.2 percent cut would be
about 10 billion rubles. Simply .converting the 10 billion ruble figure into
dollars by applying the official exchange rate would be inappropriate on two
counts. First, even market exchange rates are often poor measures of how
much of one country's currency would be required to replicate any given set
of another country's goods and services. In addition, the ruble is not a
convertible currency. The preferred technique, which we use in our
comparisons of US and Soviet defense activities, is to estimate what it would
cost the United States to replicate Soviet forces and weapons programs, and
Gorbachev as not yet given us sufficient information to do so for his
promised defense spending cut. We believe, moreover, that the 77.3 billion
ruble figure represents only about half of total Soviet defense outlays.
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Question 12: The 14.2 percent announced cut and the cuts and
redeployments announced by Gorbachev in the December 7 United Nations
speech, together with the new defensive doctrine apparently adopted by the
Soviets, suggest there will be major changes in the structure and
deployment of Soviet forces and in the composition of the defense budget.
(a) Discuss the trends and changes in the structure and deployment of
Soviet conventional and strategic forces, and in the composition of the
military budget, during 1980-85.
(b) Discuss the trends and changes since 1985.
(c) Discuss the likely effects on deployments, force structure, and the
budget should Gorbachev's announced changes be implemented, paying
particular attention to East Europe, Mongolia, and the Chinese border.
Answer:
Strategic Offensive Forces
From 1980 to 1985 the Soviets emphasized improving the accuracy and
survivability of their ICBMs and SLBMs. They replaced older SS-18 and
55-19 ICBMs -with more accurate SS-19 Mod 3 and SS-18 Mod 4 ICBMs.
They continued expanding their SS-20 IRBM forces, from about 250 SS-20s
in 1980 to over 440 in 1985. To improve the survivability of their ICBM
forces, they began testing a fifth generation of ICBMs--the rail-mobile SS-24
and the road-mobile SS-25. We judge that these solid-propellant missiles will
have a longer service life and lower maintenance requirements.
Modernization of strategic naval forces continued at a reduced pace after the
late 1970s. Through the early 1980s, the Soviets continued to produce
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Delta-III-class ballistic missile submarines, each of which carry 16 liquid-
propellant MIRVed SS-N-18 SLBMs, and the Typhoon submarine, which
carries 20 solid-propellant MIRVed SS-N-20 SLBMs. The SS-N-20 had
completed testing and was deployed by the end of this period. They also
began construction of a new class of ballistic missile submarine during this
period--the Delta-IV-class submarine which carries 16 liquid-propellant
MIRVed SS-N-23 SLBMs.
The Soviets also started producing the Bear H heavy bomber during this
period. They improved force capabilities by equipping it with the AS-15
air-launched cruise missile. They also continued development and began
flight testing the more capable Blackjack bomber. .
Since 1985, the Soviets have continued to focus on improved accuracy and
survivability. They have begun to deploy SS-25 and SS-24 mobile launchers
and MIRVed SLBMs. The Soviets have also begun deployment of the silo-
based SS-24 ICBM and SS-18 Mod 5 ICBM. Since mid-1988, the Soviets have
been eliminating their SS-4 MRBM and SS-20 IRBM forces in accordance with
the INF Treaty. They have also launched additional Typhoon and Delta-IV-
class strategic ballistic submarines, adding to the number of longer-range,
more capable MIRVed SLBMs in the USSR's submarine force. The Soviets
also are continuing to produce Blackjack and Bear H heavy bombers.
Strategic Defensive Forces
The Soviets have made gradual but persistent progress during the 1980s in
modernizing their strategic defenses, building steadily throughout the decade
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on their already considerable investment in defensive programs. For
example, we expect a modernized Moscow antiballistic missile (ABM) system to
begin operation in 1989. Begun during the 1980s, this effort will eventually
yield an expanded and upgraded system comprising a two-layered defense of
100 launchers. The Soviets have also continued to build passive defense
measures for leadership protection. This work has included construction of
deep underground bunkers, tunnels, secret subway lines, and other
facilities beneath Moscow, other major Soviet cities, and the sites of major
military commands.
To modernize their air defenses, the Soviets have been replacing older SA-
1, -SA-2, and SA-3 surface-to-air (SAM) systems with the SA-10 SAM, which
represents their first credible capability against cruise missiles. SU-27 and
MIG-31 fighters, with a true lookdownishootdown capability and modern air-
to-air missiles, are replacing older fighters. Increasing numbers of Mainstay
airborne warning and control system (AWACS) aircraft are also being made
available to Soviet air defense forces.
Conventional Forces
Between 1980 and 1985, there was slow growth in the overall size of the
,Soviet ground forces, with only a handful of new low-strength maneuver
divisions added during this period. The combat capabilities of Soviet forces
continued to increase, however, as additional infantry and artillery pieces
were added to tank divisions, and to a lesser extent, motorized rifle
divisions. Moreover, a large number of new nondivisional artillery and air
assault units were formed, which greatly increased the number of guns,
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armored infantry carriers, and helicopters in Soviet ground forces.
Ground Forces equipment modernization continued at relatively normal rates
during 1980-85, although the rate of fielding of some highly sophisticated nd
expensive missile systems began to slow during this period. In the early
1980s, the Soviets introduced such weapons as the T-80 tank, the BMP-2
infantry fighting vehicle, and the SA-11 SAM system, and began to replace
in earnest their towed artillery systems with self-propelled versions.
Modernization of the Soviets' short-range ballistic missile (SRBM) force also
occurred, with the SS-21 continuing to replace the highly inaccurate FROG
rocket at a relatively slow rate -throughout this period and the SS-23
beginning to replace the old SCUD system by 1985.
Some expansion also occurred in Soviet air forces between 1980 and 1985.
This -growth was exclusively in the ground-attack components, however,
where the number of bombers and fighter bombers increased by almost one-
third during this period. There was a corresponding loss of some 10
percent of fighter-interceptor aircraft. Aircraft modernization also continued
during the early 1980s, but at a relatively moderate pace. The numbers of
Backfire and Fencer bombers grew at a steady pace, but only a few fourth-
generation Fulcrum and Flanker fighters were fielded by 1985.
Since 1985, there has been little growth in the overall size of Soviet ground
forces, with almost no new maneuver divisions added. The force structure
changes within divisions seen in the early 1980s continued to be implemented
up through the end of 1988. Since General Secretary Gorbachev's force
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reduction announcement in December 1988, however, a major restructuring of
Soviet ground forces has begun, and it is not yet clear how, or how much,
it will affect overall Soviet ground forces structure and capabilities.
Modernization of ground forces equipment has continued since 1985, with the
introduction of more new weapons systems such as a new tank developed
from the T-72 series vehicle, a new short-range antiaircraft gun system,
and the SA-12 SAM. Because the Soviets agreed to destroy all of their SS-
23s as part of the INF Treaty, the SS-23 is no longer available to replace
the large number of SCUDs that remain in the force.
The overall size of Soviet air forces also has remained relatively stable since
1985, and equipment modernization has continued at a moderate pace.
Fulcrum and Flanker aircraft are being fielded at a modest but steady rate,
although the majority of the Soviet fighter inventory remains equipped with
the MiG-23 and even older aircraft.
Defense Expenditures
Total estimated defense expenditures--as measured in constant 1982 rubles--
continued to grow during the 1980-85 period, due to rising expenditures on
RDT&E and O&M. However, estimated procurement spending--which accounts
for almost half of total defense expenditures--was essentially flat through the
mid-1980s, as decreased spending on ships, missiles, and aircraft offset
rising expenditures for land arms and space programs. Personnel and
construction expenditures remained flat or grew very slowly during this
period.
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During General Secretary Gorbachev's tenure, however, we estimate that
procurement spending--and consequently total defense expenditures--have
shown an upturn in growth. The increase in defense procurement has been
driven by the start-up and early stages of production of new generations of
weapon systems as described above.
Effects of Gorbachev's Announced Changes
If all of the force reductions announced by Gorbachev are carried out
during the next two years, there would be a significant change in the
structure of Soviet ground forces--especially in those forces stationed
outside the Soviet Union. Although Soviet personnel reductions in Eastern
Europe would only amount to some 10 percent, six tank divisions and half of
the total number of Soviet tanks in Eastern Europe are to be withdrawn,
along with heliborne air assault units and assault river crossing units that
are designed to conduct deep offensive operations. The large tank
reductions in Eastern Europe also will require a major restructuring of all
remaining Soviet ground forces divisions. In Mongolia, the Soviets claim
they will withdraw 75 percent of their ground forces and all of their air
forces, while eliminating 12 ground forces divisions--some 30 percent--of
their strength along the Sino-Soviet border. Therefore, some of the most
threatening elements of the Soviet ground forces will be removed.
In the Atlantic-to-the-Urals zone, a 10,000 tank reduction would represent a
cut of about one-third in the total number of Soviet tanks in units, and the
elimination of 8,500 artillery systems would reduce the number of guns,
mortars, and multiple rocket launhcers by as much as 25 percent. Finally,
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500,000 men represents about a 10 percent reduction in overall Soviet
manpower. Some Soviet statements have suggested that as many as half of
all Soviet divisions and armies could be eliminated or restructured to achieve
these cuts.
In sum, all of these force reductions will reduce, to some extent, Soviet
ground forces capabilities--particularly those in Eastern Europe and
Mongolia. The Soviets, however, will still be able to effectively defend
themselves against invasion in all theaters and will retain extensive offensive
capabilities against NATO after mobilization.
As for air forces reductions, the Soviets have provided few details on the
composition of the 800 aircraft to be eliminated from Europe or of the 11 air
regiments to be cut in the eastern USSR. While significant, these
reductions would not seriously impair Soviet military capabilities unless they
are concentrated in a single force element, such as theater deep attack
aircraft.
The promised reductions in military manpower and the numbers of tanks,
artillery, and aircraft fielded by Soviet forces will--if implemented
completely--result in reductions in military operating expenditures. In
addition, as part of his promised 14.2 percent cut in defense spending,
Gorbachev has pledged to reduce expenditures for the production of weapons
and military equipment by 19.5 percent during the next few years.
As noted in our answer to question 11, however, the "total" defense
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spending figure recently released by Gorbachev--77.3 billion rubles--is only
about half of what the Intelligence Community estimates the Soviets actually
spend on defense. Depending on what is reponsible for the difference
between the defense spending figure released by Gorbachev and the
Intelligence Community's estimate, our assessment of the necessity of further
cuts in military programs beyond what the Soviets have specifically promised
would differ substantially. If, for example, the difference was due solely to
pricing problems--the Intelligence Community was using higher prices for
military goods and services than the Soviets--our judgment that additional
cuts will be necessary remains unchanged, because our estimate of the
savings achieved through announced cuts--INF, Afghanistan, and the UN
reductions--would also be lower. On the other hand, if the difference was
due only to the omission of some categories of expenditures from the new
defense budget, the ruble value of the 14.2 percent cut would be smaller
than we originally thought and most of the promised cuts could be accounted
for by the announced reductions. From the information available to date, it
is clear that a portion of the difference is due to disparities in coverage,
but an even larger portion still remains unaccounted for.
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Question 13: What changes have occurred in Soviet operations and
maintenance (O&M) activities, including military exercises of air, ground,
and naval forces, since 1985, and what have been the effects on spending?
Answer: Since 1985 the military has come under increasing pressure to
reduce waste and increase efficiency. Articles in the military press indicate
that some ground force units have been given specific goals for reducing the
use of fuel and other resources. In addition, longstanding Soviet efforts to -
extend the service life of various weapons have been given additional
emphasis. These efforts have produced little in the way of resource
savings, however.
The most notable change in Soviet operating practices- has been the
downturn in naval activity. Since 1985 the Soviet Navy has reduced its
operational tempo (optempo), i.e. the number of days that an operational
ship is at sea, either in local training operations, involved in an exercise,
or deployed out of area, as a percentage of the days available for such
operations. Soviet units are spending more time in port and at anchor and
less time at sea than in the pre-1985 period. The Navy also has reduced
the extent of distant deployments and exercise activity. The reduction in
optempo eases the burden on shipyards because repairs can be -scheduled at
longer intervals and produces some--albeit small--savings in terms of fuel
and other consumables. Ground and air exercises have not demonstrated a
similar departure from past practices, although for a variety of
reasons--including a growing recognition of NATO's military
capabilities--some ground forces exercises are now including an increasing
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number of defensive maneuvers. Again, these activities have had little
impact on overall military outlays.
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Question 14: Why did Gorbachev decide to unilaterally reduce military
spending?
Answer: Gorbachev was facing a set of problems which--if left unchecked--
could threaten the USSR's economic well-being and his own political
standing. The economy continued to perform poorly and the reforms he had
established were causing major disruptions. Therefore, the General
Secretary undertook a series of steps--including a reduction in defense
expenditures--in an effort to promote consumer welfare and reduce the
budget deficit.
Gorbachev turned to the defense sector for several reasons. Defense
production consumes large amounts of resources, some of which--
microelectronics, for example--are crucial to the civilian sector. Possibly
equally as important, though, announcement of the unilateral reductions was
intended to put political pressure on NATO to reduce its own defense
outlays. In our view, Gorbachev was hopeful that such a development would
enable the Soviets to maintain their military standing versus NATO and,
perhaps, allow for further cuts in Soviet defense spending.
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Question 15: Reportedly, the Soviets have been building up military forces
in the Kola peninsula area bordering Norway. The "Mike" class submarine
that sunk in the Norwegian Sea April 7 was a part of this buildup.
(a) Is it correct that this area contains 66 percent of the Soviet strategic
nuclear reserve, 30 percent of intercontinental bombers, 21 percent of
the intercontinental warhead inventory, and large -numbers of
amphibious and conventional forces?
(b) What is the explanation for this heavy concentration of military
resources, 'how rapid is the buildup, and what has been the trend
since 1985?
Answer: The Kola peninsula is significant in. terms of Soviet strategic strike
forces because it contains the homeports for the nuclear-powered ballistic
missile submarines (SSBNs) of the Northern Fleet. The Typhoon, Delta and
Yankee-class SSBNs based on the Kola- comprise some two-thirds of the
Navy's SSBNs, with the others based in the Pacific. Though upgraded with
significantly more capable classes, the total number of SSBNs based on the
Kola has remained basically constant for more than a decade. The Northern
Fleet SSBNs carry about one-fifth of the Soviet Union's total arsenal of
strategic warheads, most of which are carried by intercontinental ballistic
missiles (ICBMs). The Kola does not contain ICBM silos or home airfields
for long-range bombers.
The Kola peninsula is important to the Soviets because it offers the Northern
Fleet the advantage of immediate access to open waters, whereas units of the
Baltic and Black Sea Fleets must pass through straits that would be
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controlled by NATO in time of war. Conversely, the Soviets recognize that
NATO forces can threaten Soviet territory and SSBN operating areas from -
the maritime approaches off the Kola. The Northern Fleet, therefore, has
become the most important of the Soviet fleets and has traditionally enjoyed
-a high priority in the allocation of new units. In addition to new SSBNs,
since 1985 the Fleet has continued to gradually receive new major surface
combatants--such as Kirov and Slava-class cruisers--and Oscar-, Sierra-,
and Akula-class submarines. A Kola-based naval aviation strike regiment
was also 'recently upgraded by the addition of medium-range Backfire
bombers. Although the concurrent retirement of older units has meant that
the Fleet has not changed dramatically in size, it has become a higher
quality force. Although most of the Fleet's wartime role would involve
operations at sea, it also includes a small naval infantry unit that could
conduct amphibious landings in support of operations by Soviet ground
forces units.
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Question 16: There is much talk by the Soviet leadership of conversion of
defense facilities to consumer production. Aside from anecdotal evidence, is
it possible to measure the level of conversion that has taken place and that
will occur in the future? Can you conclude at this time that there has
already been a significant shift in resources from defense to the civilian
sector?
Answer: We have not yet observed a major shift in Soviet production
? priorities from weapons to civil goods, but are seeing limited signs that
changes are beginning to occur. For example, Western journalists, who
were recently allowed to visit Moscow Plant 30--which produces the MiG-29
Fulcrum--noted that the facility appeared to be at least partially converting
to civil production; the plant director said production of the fighter would
be cut 30 percent a year through 1990. The Soviets, however, are likely to
increase production-of the MiG-29 elsewhere, because demand for the aircraft
probably will remain high.
We should not be surprised by the fact that we have little evidence so far
of a diversion of defense industry resources to civil programs. Altering the
guns-versus-butter ratio requires more than a budgetary adjustment and
takes time to implement. New designs must be developed and tested;
production plans must be changed; financial, material, and human resources
must be reallocated; new production processes must be set up; and the
goods that emerge must be priced and shipped to customers. Moreover, it
will take time for us to identify and accurately assess any reductions in
weapons development or production. For example, we will not always know
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immediately whether apparent cutbacks in weapons programs are intentional
and prompted by economic imperatives or whether the affected facilities are
experiencing supply or technical problems.
It is difficult to analyze Soviet statements on the conversion of defense
industrial capacity to civil programs. Many of them are being exaggerated
to send a positive message to consumers and to the West. In addition,
statements on conversion have been somewhat confusing and may be
purposely.misleading. The confusion arises in part because the Soviets for
the first time are talking openly about their common practice of producing
both civil and military products in defense industry- plants (see inset).
Until aggregate data become available--which could be several years--it will
be difficult to assess the scale of the shift to civil output.
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411
The Soviet Defense Industry:
Support for the Civil Sector
Of the 16 industrial ministries that make up the machine-building complex,
nine?collectively referred to as the defense industry?specialize in military
hardware while the other seven produce primarily civil goods. The bifurcation of
these ministries does not mean, however, that production is neatly segregated. The
civil ministries produce military items such as armored vehicles and missile
launchers, while the defense industrial ministries produce a variety of civil goods.
In fact, Premier Ryzhkov recently announced that 40 percent of the output of the
defense industry was civil goods in 1988. He claimed that the proportion is to rise
to 50 percent by 1991 and 60 percent by 1995.
Defense Industrial Plants:
A Growing Responsibility for Civil Production
Perc ent
100
80
SO
40
- 20
0
1988
90
95
Civil
ggg weapons
Selected Defense Industry Output:
Estimated Percent of Total Production in 1988
Consumer Durables
Refrigerators ?
95
Washing machines
60
Tape recorder)
90
Television sets
100
Producer Durables
Numerically controlled
machine tools 25
Computers 90
Tractors 15
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Question 17: In the past, this Committee has been told that reductions in
defense spending do not translate on a one-for-one basis into increases in
civilian economic activity because of lead time problems and the structure of
the Soviet economy. Do you have an estimate of how much a 14.2 percent
cut in spending would add to Soviet GNP over the next five years?
Answer: Defense production contributes directly to our measure of Soviet
GNP. Thus, the initial effect of a cut in defense would be to lower GNP
unless the cuts were soon offset by increased non-defense economic activity.
The freed resources can contribute to boosting non-defense economic activity
in at least two ways: a portion can be directly -channeled to consumer goods
production, and this in turn may raise productivity by providing improved
material incentives; over the longer term a portion can be channeled to
civilian R&D and investment which would raise productivity by stimulating
technical advance and augmenting capital stock.
The lengthy process of restructuring industrial capacity suggests that the
increases in non-defense GNP will be slow in coming. Thus, the overall
increase in GNP from a substantial defense cut over the next five years is
likely to be small. Nevertheless, consumption per capita would be somewhat
higher than otherwise as would civilian investment resources, setting the
economy up for somewhat faster growth in the second half of the 1990s.
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Question 19: The report estimates that Soviet defense spending increased by
3 percent in 1988, about the same as in recent years. I understand that
William Lee, an analyst with the DIA, has a different estimate. According to
Lee's estimates, Soviet procurement has already been reduced in the past
several years. Can you discuss Mr. Lee's analysis and findings and your
reactions to them?
Answer: We are unaware of any recent published estimates by Mr. Lee that
indicate defense spending has dropped and we believe it would be
inappropriate to comment on unofficial or oral presentations. We are,
therefore, unable to comment on the findings.
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Question 20: In a speech in London on April 7, Gorbachev made some
interesting remarks about Soviet manpower. He said Soviet numerical
strength as of January 1 was 4,258,000 men. That figure is about one
million below some Western estimates. What is your own estimate of Soviet
active duty strength and how do you reconcile it with Gorbachev's figure?
Answer: General Secretary Gorbachev's speech provided the West with its
first "official" statement on the numerical strength of the Soviet armed
forces. Although Gorbachev announced that the number was 4,258,000, he
did not fully indicate what this figure included.
A few days later, General Batenin--a military advisor to the Central
Committee--confirmed that the armed forces had 4.2 million men but added a
significant qualification: he claimed that the total excluded KGB border
guards, internal troops of the Ministry of Internal Affairs (MVD), and civil
defense troops. He noted that when these were added in, the number rose
to "over five million."
CIA's estimate of Soviet active duty military personnel who perform a combat
mission is 4.4 million. If we exclude the KGB border guards from this
estimate in order to make it more comparable to what we believe Gorbachev
may have included in his 4,258,000 figure, our estimate becomes 4.2 million.
On the other hand, if we add in the remaining Soviet uniformed military
personnel--MVD, construction, railroad, and civil defense troops--and ?the
KGB personnel previously removed for comparability purposes, our estimate
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increases to 5.5 million men. This roughly compares with Batenin's figure of
Hover five million."
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Question 21: I understand a recent Rand study shows that Soviet manpower
figures have been overestimated in the past, and that analysts in both CIA
and DIA have been examining this issue. What are the reasons for the
overestimation, if any? Why is it not possible for you to give us an
unclassified table showing the trends in military manpower?
Answer: Some two years ago, prior to the Rand study, CIA concluded that
given our current estimates of force structure and manning levels, the
number of Soviet 18-year-old males who would have had to be conscripted to
man the forces was unrealistically large when compared to the size of the
18-year-old male population and the evidence on draft deferment. We
undertook a review of our data and determined that manning in some
units--particularly in non-combat support elements--needed to be changed.
Although the manning level in most of the units which we were able to
update was decreased, in -some it was increased. The net result was a
reduction in our estimate to the current total of 5.5 million (see table).
If the overall size of the Soviet military--in the broadest sense--is at least
five million men, as indicated by General Batenin, the CIA estimate would be
within ten percent of his total. We believe that this probably is as close as
we can come to the "true" number, given the available evidence. If the
Soviet Military Manpower
million men
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
Total Manpower 5.3
5.3
5.4
5.4
5.5
5.5
5.5
5.5
5.5
5.5
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Soviets become more open with their military statistics, we will adjust our
numbers and methodologies accordingly.
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Question 22: Your report shows that the Soviet Union lags behind the United
States in seven key technologies. Three years ago, you gave us a table
showing similar lags for some of the same and for different technologies.
With respect to each of the technologies, are the lags getting wider or
narrower?
Answer: In the areas of mainframe and supercomputers and fiber-optic
equipment, the technology gap appears to have widened. We estimate that
the technology gap narrowed by several years in the case of computer-
operated machine tools but that it stayed about the same with respect to the
Soviet's ability to integrate automated machine tools within flexible
manufacturing systems. The US lead in microcomputers remained about the
same for the most advanced components, but was cut about in half for the
least technically advanced items. We judge that the US lead in advanced
microcircuits stayed about the same between 1987 and 1989.
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Question 23: How were the ranges of the lags determined, and what are the
effects of the lags on military production?
Answer: The lags were determined by comparing the dates when series
production began for high tech Western equipment with the dates when
comparable Soviet equipment entered production. In cases where comparable
Soviet equipment has yet to enter series production, we used the date we
estimate series production will begin. The ranges for the lags typically
reflect the use of several models of US and Soviet equipment in making the
comparison.
These lags are a -handicap to the Soviets in their efforts to field weapon
systems incorporating advanced technologies. The Soviets, in many cases,
have attempted to offset this handicap by incorporating advanced
technologies into their weapon systems as soon as they are confident they
can produce them. In the US, on the other hand, advanced technology
often shows up first in products for the civilian sector. In situations such
as these, the Soviet lag in technologies incorporated in military systems
would be less than the lags depicted in our chart.
The technology lag also makes military production less efficient than in the
US. Less technological sophistication means more time-consuming hand labor
will be required, resulting in lower levels of productivity and precision.
This trend is particularly evident in manufacturing areas that require close
tolerances--aircraft construction, avionics fabrication, microelectronics
production, and precision machining. Here the Soviets are particularly
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hindered by their lags in microelectronics and machine tools. The Soviet lag
in microelectronics means that the sophistication of the computer controllers
on Soviet numerically controlled machine tools has to be kept low. The
Soviet lag in these machine controls results in less efficient machining
operations, increased waste from mismachined parts, requirements for large
numbers of skilled machinists, and slowness in changing production assembly
lines when new products are introduced.
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Question 24: In view of the fact that the industrial modernization program
seems to be on hold, and military spending is apparently being reduced, is
it fair to conclude that it is not likely that Soviet dual-use and military
technology lags with the United States will be substantially reduced in the
foreseeable future?
Answer: That is a fair conclusion. Improving the technology levels in
Soviet industry will require levels of capital investment and reforms in the
economic system that the Soviets may be unable or unwilling to make. In
the microelectronics industry, which the Soviets identified very early in
? perestroyka as critical to industrial modernization, the Soviets have
acknowledged that despite their efforts to date, a significant technology lag
still exists with the West. If the Soviets are unable to achieve real
progress in closing the gap in such a critical technology, it is unlikely that
other technology gaps--many of which depend on advanced microelectronics--
will narrow.
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Question 25: In your view, have the stepped up U.S. and COCOM efforts to
control exports of military and related technology, and the intensified anti-
espionage efforts, slowed the undesirable transfer of technology to the
Soviet Union?
Answer: It has always been difficult to measure the effects of export control
actions taken in COCOM on the proscribed countries' ability to acquire
Western high technology equipment. We know, however, that the Soviets
continue to illegally obtain computer and other controlled equipment by
avoiding COCOM controls altogether. At the same time, the proscribed
countries have not been successful in acquiri-ng the know-how necessary to
build--on their own--the computers and other high technology equipment that
they desperately need. We can only attribute this to COCOM's ability over
the years to prevent whole turnkey plants--along with the technicians who
know how to make the facility work--from reaching the proscribed countries.
Without such COCOM cooperation, we believe that Western countries would
have succumbed long ago to pressure from the East to sell the technology
that thus far they have been unable to obtain.
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Question 26: There are differences of views over whether the United States
and the West can exert economic leverage against the USSR to influence its
economic, human rights, and foreign policies. For example, a recent report
by the Trilateral Commission urges that the West follow the policy of
linkage, which implies that leverage does exist. Do the facts demonstrate
that economic leverage or linkage has been effective in modifying Soviet
policies?
Answer: Economic leverage or linkage has been largely ineffective in altering
Soviet behavior because of the failure to get wide-scale support within the
Western alliance. Unilateral attempts-by the US have sent strong political
signals, but have had little impact because of the very small role the US
plays in the Soviet economy. At best, they have proven to be minor
inconveniences. There are a few key sectors--energy, agriculture, steel,
and petrochemicals, for example--where Western inputs have played an
important role in the pace of Soviet economic development. A concerted
effort by the Western alliance to limit Soviet access in these areas could
have an impact on the Soviet economy and thus potentially influence Soviet
behavior.
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Question 27: We have seen a considerable opening of Soviet society since
glasnost was instituted. Is more and better quality information about the
Soviet economy now available? If not, discuss briefly the major gaps in
information and what statistics we would like to have access to.
Answer: Gorbachev's policy of glasnost has, on balance, had a positive
impact of the availability of Soviet statistics, as the Soviets have resumed
publication of data series previously withdrawn from their economic
yearbooks and provided some types of information never published
previously. Moscow has also begun marketing statistical data, both at home
and abroad, and is developing new data series for the use of planners and
managers. At the same time, though, troubling gaps and discontinuities in
the statistics on monthly, quarterly, and annual economic performance
continue to occur. Overall, much less economic information is released in
the USSR than in Western countries.
While the quantity of Soviet statistics has improved under glasnost, the
quality of Soviet measurements of economic performance continues to suffer
from numerous defects. Moreover, the Soviets have done little to clarify the
methodologies and definitions underlying their economic performance
measurements. Thus, glasnost has not resulted in fundamental improvements
in the reliability of Soviet economic performance measures.
Similarly, in the area of defense expenditures, although the Soviets have
released a figure--77.3 billion rubles--which is almost four times higher than
their previously published "defense budget," the new total is still only about
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half the level of Intelligence Community estimates. Nor have they explained
precisely what is included in this number.
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Question 28: Some Soviet and Western economists dispute the CIA estimates
as overstating the size of the Soviet economy by not taking adequate account
of inflation and misreporting of economic activity. How do you respond to
this criticism and what steps, if any, are you taking to obtain outside
evaluations and to revise your methodology?
Answer: Under glasnost, the Soviets have published sharp criticisms of their
own official statistics and have allowed some of the critics to publish
alternative estimates of the USSR's past economic growth. For the most
part, such criticisms have confirmed what we in the Intelligence Community
have long believed: that time series of official Soviet macroeconomic
statistics expressed in ruble terms--for example, on national income or
GNP--exaggerate growth largely because of their failure to correct completely
for inflation. Our estimates of Soviet growth are based primarily on
disaggregated Soviet data expressed in physical units such as tons, kilowatt
hours, and so forth. They have consistently shown that Soviet economic
growth has been lower than officially claimed and have been closer to the
alternative unofficial estimates published under glasnost than to official
Soviet data.
In some instances the glasnost-inspired critics maintain that Soviet economic
growth has been even lower than we estimate. It is possible that this
indicates error on our part. If so, we believe the most likely cause would
be our limited reliance on Soviet statistics expressed in ruble terms, which
would impart upward bias to some parts of our estimates. In our view,
however, much of the upward bias is probably offset by the downward bias
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.>
inherent in using physical measures which fail to capture improvements in
the quality of goods and services and which probably lead us to
underestimate the growth of some types of output. Moreover, the Soviet
critics of Moscow's official statistics have not as yet been able to provide
much information about the evidence on which their unofficial estimates are
based and the information they have provided suggests that their estimates
are rough approximations. We are prepared to revise our estimates when
and if better information becomes available but so far glasnost has not
provided this. Our answer, in short, is that overall we believe our
estimates are adequate for the uses we make of them--the identification of
general trends and emerging problems. Moreover, we believe that our past
statements to this Committee have emphasized the severity of Soviet economic
problems.
We would also note that our estimates of Soviet defense spending are not
based on published Soviet economic statistics. Although these estimates have
their own potential problems, the charges raised by glasnost-inspired critics
of Soviet statistics have no relevance to them.
CIA routinely consults with academic specialists in national income accounting
on the methodologies used by the Office of Soviet Analysis in measuring
Soviet GNP. For example, the Office sponsored an unclassified conference
featuring papers by academic specialists and CIA GNP analysts in 1987, the
proceedings of which were published in The Impact of Gorbachev's Policies
on Soviet Economic Statistics, SOV 88-10049, July 1988. The Office also
held an unclassified conference this spring at which CIA and US academic
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experts in GNP methodologies presented papers reviewing methodologies
currently used in our calculations of Soviet GNP. The conference papers
will be published.
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