GORBACHEV'S ECONOMIC PROGRAMS: THE CHALLENGES AHEAD

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP93T00451R000200010001-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 7
• Document Creation Date: December 23, 2016
• Document Release Date: February 19, 2014
• Sequence Number: 1
• Publication Date: December 1, 1988
• Content Type: NIE

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CONTROL RECORD FOR SUPPLEMENTAL DISTRIBUTION
SERIES NUMBER
NIE 11-23-88WKJ
t
CLASSIFICATION OF R PORT
s,
DISTRIBUTION TO RC
DATE OF DOCUMENT
Dec. 1988
NUMBER OF COPIES
52
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DATE
SENT
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FORM 0353
2.65
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Director of Central Intelligence
ecre
50-52 EXTRAS/CB
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Gorbachev's Economic Pro rams:
The Challenges Ahead
National Intelligence Estimate
Key Judgments
These Key Judgments represent the views
of the Director of Central Intelligence
with the advice and assistance of the
US Intelligence Community.
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NIE 11-23-88W
December 1988
Copy
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The following intelligence organizations participated
in the preparation of these Key Judgments:
The Central Intelligence Agency
The Defense Intelligence Agency
The National Security Agency
The Bureau of Intelligence and Research, Department of State
The Office of Intelligence Support, Department of the Treasury
also participating:
The Deputy Chief of Staff for Intelligence, Department of the Army
The Director of Naval Intelligence, Department of the Navy
The Assistant Chief of Staff, Intelligence, Department of the Air Force
The Office of the Deputy Assistant Secretary for Intelligence,
Department of Energy
The National Foreign Intelligence Board concurs,
except as noted in the text.
The full text of this National Intelligence Estimate is being published
separately with regular distribution.
Warning Notice
Intelligence Sources
or Methods Involved
(WNINTEL)
National Security Unauthorized Disclosure
Information Subject to Criminal Sanctions
Dissemination Control
Abbreviations
NOFORN (NF) Not releasable to foreign nationals
NOCONTRACT (NC) Not releasable to contractors or contractor/consultants
PROP1N (PR) Caution?proprietary information involved
ORCON (OC) Dissemination and extraction of information '
controlled by originator
REL... This information has been authorized for release to...
WN WNINTEL?Intelligence sources or methods involved
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Key Judgments
We believe that Gorbachev's efforts at reviving the Soviet economy will
produce no substantial improvement over the next five years, although his
efforts to raise consumer welfare could achieve some modest results. Soviet
attempts to raise technology levels will not narrow the gap with the West in
most sectors during the remainder of this century.'
Gorbachev's economic program has so far failed consumers, who, accord-
ing to anecdotal evidence, are probably somewhat worse off now than they
were when Gorbachev assumed power in 1985. To improve consumer
welfare, Gorbachev has begun to place more emphasis on housing, food
processing, and light industry; and the defense industry is being told to
increase its production for consumers. Gorbachev has also sought to expand
the private and cooperative sectors through long-term leasing arrange-
ments in both agriculture and industry. These initiatives are the ones that
are most likely to im rove the quality of life in the Soviet Union over the
next five years.
Gorbachev's effort to reform the country's system of planning and
management and to improve the country's capital stock is going poorly. 111-
defined reform legislation, interference by ministries, and piecemeal
implementation are creating disruptions and preventing progress. Reforms
already planned in the state sector will probably be implemented slowly.
Sharp moves toward a market economy would be very disruptive and would
jeopardize popular support for his programs. Nevertheless, Gorbachev has
often dealt with setbacks by adopting radical measures, and we cannot rule
out an effort to move rapidly toward a market economy in the state sector.
To promote growth of private enterprise, Moscow must allow more
flexibility and reliance on the market for leasing and cooperative arrange-
ments in order to increase significantly the production of goods and
services for consumers. A resentful public and skeptical bureaucracy will
make this difficult. Lease contracting in agriculture will remain bound by
centrally directed procurement targets, reliance on state supplies, and a
' The Director, Defense Intelligence Agency, believes that this uneven performance could
include sufficient improvement in the Soviets' economic and technical base to facilitate
fulfillment of future military requirements. Moreover, since the Soviets already lead in
several key defense technologies, they should be able to continue assimilating technology
gains in this sector
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recalcitrant bureaucracy. The comparatively high prices of privately
supplied goods will spur inflation. An added problem for Moscow is that
these reforms probably will be most successful, at least initially, in non-
Russian areas such as the Baltic states and the Caucasus.
We do not foresee a large, sustained increase in Soviet imports from the
West. The Soviets may increase borrowing to perhaps $3-4 billion net per
year over the next few years. Even a much larger surge in borrowing from
the West, which we think is very unlikely, would not aid the overall
economy substantially or ameliorate the resource competition between the
military and civilian sectors. A few industries may benefit, however.
We judge Gorbachev will divert additional resources from defense?
including managers, equipment designers, investment funds, and plant
capacity?to his civilian programs. While we recognize there is some
redundant plant capacity, significant increases in the production of goods
for the civilian sector would require a diversion of resources from the
military. Diversion from defense to civilian objectives will escalate conflicts
over resource allocation because it could delay upgrades to weapons plants,
thereby postponing the introduction of new systems. Clearly there are
strong economic pressures for major reductions in military spending.
Striking the right balance will involve many leadership arguments and
decisions over the entire period of this Estimate. In any case, the large-
scale modernization of Soviet defense industries in the 1970s has already
put in place most of the equipment needed to produce weapon systems
scheduled for deployment through the early 1990s.2
Moscow will press harder on Eastern Europe for more and higher quality
machinery and consumer goods, for greater participation in joint projects,
and for greater contributions to Warsaw Pact defense. Such demands will
produce only marginal benefits for the USSR because of real economic
constraints in Eastern Europe and the reluctance of its regimes to help the
Soviets.
There is some chance that Gorbachev's economic programs may not
survive. Disruptions, such as widespread reform-related work stoppages or
a drastic drop in performance indicators, might strengthen conservative
opposition. Such trends, coupled with continuing nationality turmoil, could
force the leadership into a major retreat.
The Director, Defense Intelligence Agency, holds an alternative view that a critical
distinction must be made between near-term resource allocation trade-offs that can be
made without significantly disrupting current defense procurement, and those of the longer
term where a downward turn in defense spendingtrends may result in reordering or
stretching out of weapons procurement.
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Given the severity of Soviet economic problems, Gorbachev needs the
many benefits of a nonconfrontational international environment. This
gives the United States and its allies considerable leverage in bargaining
with the Soviets over the terms of that environment on some security issues
such as regional conflicts and arms control and on some internal matters
such as human rights and information exchange. The margins of this
leverage will be set by Moscow's determination not to let the West affect
the fundamental nature of the Soviet system or its superpower status.'
For a fuller discussion of these issues, see SNIE 11-16-88, Soviet Policy During the Next
Phase of Arms Control in Europe, November 1988; NIE 11-3/8-88, Soviet Forces and
Capabilities for Strategic Nuclear Conflict Through the Late 1990s (Volume I), December
1988; and the forthcoming Estimates NIE 11-14-88, Trends and Developments in Warsaw
Pact Theater Forces and Doctrine, 1988-2007; and NIE 11-4-89, Soviet Strategy Toward
the West: The Gorbachev Challenge.
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