QUARTERLY BULLETIN ON SOVIET ECONOMIC GROWTH SECOND QUARTER 1986

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89T01363R000200300009-0
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 5
• Document Creation Date: December 27, 2016
• Document Release Date: September 15, 2011
• Sequence Number: 9
• Publication Date: August 1, 1986
• Content Type: REPORT

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Directorate of Gonfiden Intelligence 25X1
Quarterly Bulletin on
Soviet Economic Growth
Second Quarter 1986
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C+
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SOV SEG 86-003
August 1986
409
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Directorate of Confidential
Intelligence
Quarterly Bulletin on
Soviet Economic Growth
Second Quarter 1986
This bulletin was repared by
Office of Soviet Analysis
SOVA
Comments and queries are welcome and may be
directed to the Chief, Defense Economics Division,
Confidential
SOVSEG 86-003
August 1986
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 Gorbachev Presses Soviet Economy
for Further Improvement
A. Good Economic Growth Outlook for 1986
The Soviet economy is doing better under General
Secretary Gorbachev, but he is impatient for improve-
ments in the quality as well as the quantity of output.
The outlook for growth in 1986 is good overall, with
gross national product projected to increase 3 to 3 1/2
percent. Industry probably will come close to reaching
its 4.3-percent growth target this year. After disap-
pointing results in 1984 and 1985, agriculture appears
headed for solid gains-except for a decrease in the
grain crop.
After focusing on improving productivity through
discipline and antialcohol campaigns, Gorbachev is
intensifying his attack on the difficult problem of
modernizing the industrial base. Toward this end,
investment has shown a marked increase, especially in
machinery. The recent firing of two ministers because
of the continued poor quality of civilian machinery,
however, indicates that he is not satisfied. Meanwhile,
Gorbachev's strategy of raising the volume and quali-
ty of new investment must take into account declining
hard currency earnings, which are cutting into im-
ports of Western equipment needed for moderniza-
tion.
D. Trade Problems Growing, Imports Slashed
Falling world oil prices are squeezing Soviet hard
currency export earnings and beginning to take their
toll on imports of goods from the West. In the first
quarter of 1986, the USSR ran a $1 billion hard
currency trade deficit. Export earnings for the re-
mainder of the year are unlikely to improve and could
decline further as the full impact of continued low oil
prices is felt. The depreciation of the dollar has
further contributed to Soviet trade problems because
oil, the principal export, is sold in dollars and most
imports are purchased in other hard currencies. As a
result, with oil selling at lower prices and dollars
buying less, we expect the ratio of export prices to
import prices to drop to a 13-year low in 1986
In response to the decline in export earnings, the
Soviets have been unwilling so far to borrow sufficient
hard currency to maintain imports at 1985 levels, but
they have increased gold sales. Several large invest-
ment projects, which were under negotiation at the
beginning of the year, have been cut back, postponed,
or canceled.
310172 886
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B. Better Industrial Growth Continuing
Percent growth a
10
10 1977
80
a Calculated using value added in 1982 rubles.
b Projected.
85 86b
Industrial production in first half 1986-which we
estimate from official statistics-was roughly 5 per-
cent higher than output in first half 1985. Part of the
increase reflects unusually poor performance early
last year because of the coldest winter in two decades.
First-half growth this year over second half 1985 was
slower-a little more than 3 percent (seasonally ad-
justed)-but still better than before Gorbachev as-
sumed power. Output in the second quarter (also
seasonally adjusted) was off slightly from that in the
first quarter, but in the past such slips have usually
been temporary.
Several problems that previously held back growth
have eased. Oil production averaged 12.2 million
barrels per day in first half 1986-its highest level in
two years. Nearly all of the increase occurred in
western Siberia, largely because idle wells returned to
production, the pace of drilling and well completions
rose sharply, and gas-lift operations improved. Rates
of growth in transportation and the production of
basic materials-metals, chemicals, cement, and tim-
ber-also are higher in 1986.
E. MBMW Report Card: High Marks for Growth,
Low Marks for Quality
Billion current dollars
35
30
25
20
15
Gold sales
Net foreign
borrowings
I
0 1982 1983 1984 1985 1986a
a Projected.
Despite respectable output growth, the machine-
building and metalworking (MBMW) sector is under
heavy pressure from the Soviet leadership. We esti-
mate that output of civilian machinery in first half
1986 increased by a respectable 5 percent over first
half 1985. Nevertheless, recent press reporting sug-
gests that the Kremlin is worried about the sector's
slow pace of industrial renovation, the marginal im-
provement in product quality, and the failure to
upgrade its technological base sufficiently. In the past
six months, seven of the 11 civil MBMW ministries
have been criticized for one or more of these prob-
lems, and, in a highly unusual step, four defense-
industrial ministries were recently criticized for the
production of poor-quality consumer goods. The firing
in July of two MBMW ministers, including one
Gorbachev appointee, underscores the leadership's
concern.
Index: 4th quarter 1981= l00
114
112
108
106
104
102
100
Industrial output
(seasonally
adjusted)
_________.~_J_.J I I l l l j_, I I I
98 1 11111 IV 1 III!! IV I 11 111 IV 111111IV 111
1982 83 84 85 86
a Calculated using value added in 1982 rubles.
b Average annual growth from second quarter 1982
through first quarter 1985 (2.2%).
Machine-Building Ministry Recent Actions and Criticisms
Responsible for Production of
Electrical equipment
Machine tools
Automation equipment and
control systems
Household appliances and food
and textile equipment
Construction machinery
Chemical and petroleum
equipment
Poultry, livestock, and fodder
Heavy and transport equipment
Minister fired
Minister fired
Minister severely criticized,
under plan for quality
Poor-quality, obsolete consumer
goods
Failed to meet goals for quality
Decline in rate of retooling
Slow to retool
Delivery of output behind
schedule
Automobiles and robots
Radar, computer, and radio
equipment
Communications equipment
Ballistic missiles and space
systems
Electronic parts, components,
and computer equipment
Production of advanced equip-
ment behind schedule
Minister criticized for poor-
quality consumer goods
Ministers cautioned about their
"personal responsibility" for
improving the quality of con-
sumer goods
C. Agriculture Looking Up
Despite weather-related problems with the grain crop,
agriculture appears headed for a recovery this year.
We estimate total farm output will increase by about
3 percent this year. This would be slightly above the
previous high reached in 1983 and a welcome reversal
of a two-year slide.
Production of meat and dairy products-spurred by
ample feed supplies from a bumper forage crop last
year-is continuing the steady growth of the past few
years. Although it is too early to estimate the final
outturn, the forage harvest is off to the best start since
1983 and should lead to further increases in meat and
milk production. The outlook for grain is less encour-
aging. Given average weather during the harvest, the
USSR should bring in a grain crop of about 182
million metric tons, nearly 15 million tons less than
last year's estimated output and roughly equal to the
mediocre 1981.85 average level. Perhaps indicating
the regime's determination to pull agriculture out of
its doldrums, deliveries of chemical fertilizers, feed
additives, and some farm machinery were up substan-
tially compared with those in first half 1985.
F. Push Toward Modernization
By the late 1980s, Gorbachev plans to rely on more
and better machinery as the main source of growth in
productivity and output. According to Embassy Mos-
cow, when some Gosplan officials urged that Gorba-
chev settle for a slower rate of output growth in
exchange for quality improvements, he refused and
demanded rapid progress on both fronts. Investment,
Gorbachev's key to the modernization program, rose
sharply in first half 1986. State investment, about 90
percent of the total, increased by 10 percent over the
same period in 1985. Investment in civilian machine
building also grew rapidly-by 18 percent-but
growth fell short of the 30-percent target for the year.
The returns are not in yet on the call to double
retirement rates of old equipment, another essential
step toward modernization.
Gorbachev's recent speech in Vladivostok shows the
pressure he is continuing to exert for prompt action on
the modernization front. Indeed, his impatience with
the slow pace of retooling may have led to the recently
announced decision that the defense-related machin-
ery producers will provide help to industries producing
consumer goods.
Index: 1982=100
114
112
108
Confidential
Net livestock
production"
106
104
102
100
98
1983 1984
1985 l986c
a Calculated using net output in 1982 rubles.
b Calculated using gross output in tons.
C Projected.
Total net
farm outputa
Total grainb
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25X11
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Gorbachev View of Progress
The results ... for thehrst half of this year . , . show
that the positive changes in the economy, even if not
to the same extent everywhere, are gainingforce... .
The pleasing and encouraging improvements have
been obtained first and foremost as a result of
measures for strengthening labor, state, and plan
discipline. People ... have started to work better.
They have pushed away drunkenness, and positive
results are already there.
But, along with the general favorable indexes of the 25X1
half year, in some branches the rates of growth in
May and June fell.... An erratic pace of production 25X1
continues to cause grave troubles as well as an 25X1
insufficiently effective use of what we have at our
disposal. The quality of output has not shown any
marked changes for the better, and you know that
this is our common misfortune.... Any qualitative
changes that would have really consolidated tenden- 25X1
ties for an accelerated growth have not happened yet
in the country.... But we cannot and will not retreat.
There is simply no other alternative to the strategy of
acceleration.
-Speech in Vladivostok
28 July 1986
Confidential
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Imports
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Confidential
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