(UNTITLED)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T01017R000504820001-1
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 6
• Document Creation Date: January 12, 2017
• Document Release Date: February 23, 2011
• Sequence Number: 1
• Publication Date: December 11, 1986
• Content Type: MEMO

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Central Intelligence Agency
washln n,n.c.20505
DIRECTORATE OF INTELLIGENCE
11 December 1986
Czechoslovakia: Pondering Reform
Summary
Recent press articles and rumors circulating in Prague point
to a growing debate within the Czechoslovak Communist Party and
government over whether and how much to reform the lagging
economy. Much of the impetus for the debate appears to have come
from Soviet leader Gorbachev's efforts to shake up and invigorate
the Soviet bureaucracy in order to accelerate economic growth and
increase efficiency and productivity. Although Prague's
opposition to change is still strong enough to stymie major
modifications of current regime economic policy in the near
future, the hardliners may be coming under some pressure from
Moscow and the regime's own pragmatists to become more open to
public airing of economic criticism and innovative proposals.
The pragmatic elements within the leadership appear emboldened by
the signals of economic change from the Soviet Union and
apparently have won at least small concessions on economic policy
at a Party plenum earlier this month. We believe the growing
debate over the relevance of Soviet-style reform for
Czechoslovakia is likely to continue and may even intensify,
especially if Gorbachev's drive to revamp the Soviet economy
gains momentum. This could pave the way for the eventual ouster
of hardliners and implementation of more pragmatic policies. C
This memorandum was prepared by Eastern
European Division, Office of European Ana ysis.
questions are welcome and should be addressed to
Acting-Chief, East European Division
Fie ------------------
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Background
Inconsistent performance and poor quality goods are just two
of the problems that have increasingly afflicted the Czechoslovak
economy in recent years and caused growing consternation within
the leadership. The regime has taken no concrete action to
revitalize the country's antiquated, energy-intensive industrial
base, however, and its inefficient, centralized management system
has acted as a brake on economic progress. Efforts to implement
decentralizing reforms to improve economic performance have been
stymied by hardliners who fear such measures would bring
instability. Adding to Czechoslovakia's woes are an entrenched
bureaucracy that clings to a system that rewards political
loyalty over competence, managers who bear little responsibility
for the performance of their enterprises, and an alienated labor
force resistant to regime exhortations to improve productivity.
Until recently the Czechoslovaks, closely attuned to Moscow's
directives, appeared secure in the belief that the Soviets were
as unattracted as they to economic innovation and would put no
pressure on them to deviate from their normal do-nothing habits.
Gorbachev, however, has disturbed this status quo by telling the
East Europeans to do more to help the Soviets in their campaign
for economic improvement. For countries like Czechoslovakia this-
means sending more and better products to the Soviets and
improving economic efficiency. Moreover, the reports of change
from Moscow are likely to be disconcerting to many in the
Czechoslovak leadership. Gorbachev has begun to shake up the
party and state cadre, swept out many Brezhnev cronies,
prosecuted corrupt officials, and pushed through innovations in
the economy intended to weaken the power of the central
bureaucracy, actions which are antithetical to the Prague regime.
These moves appear to have sparked a debate in Prague over
economic policy and emboldened pragmatists who have long wanted
to see at least limited economic innovation in Czechoslovakia.
The Press as a Forum
In recent months both pragmatists and hardliners within the
party seem to have been using the press to air their views on the
merits and dangers of Soviet reforms and their possible use in
Czechoslovakia. Many articles and commentaries have focused on
such problems as corruption, the need for increased economic
productivity and efficiency and worker discipline. Such
complaints are not new to the Czechoslovak media, but the
enthusiastic discussion of recent Soviet responses to similar
problems suggests that Gorbachev's actions may be giving the
pragmatists hope that their arguments for some kind of economic
change will succeed.
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Perhaps the clearest sign that a debate over economic policy
is under way appeared in a recent editorial in the Slovak
Communist Party newspaper, Bratislava Pravda, which warned
"ideologues" and "economists" not to blame each other for the
country's economic problems. The author sided with the
pragmatists in arguing for more economic incentives to complement
ideological mobilization and hinting that new, revolutionary
methods were needed to resolve the economy's current problems.
In addition, several press articles in the past few months
appear to show advocates of change on the offensive. Managerial
corruption and persecution of whistle-blowers have been strongly
condemned, self-enrichment at the expense of the society is
coming under increased fire, and calls for Soviet-style
self-criticism also occur frequently. This month a leading
Czechoslovak economist publicly advocated a market-oriented
system with more managerial independence and phasing out
subsidies to loss-making enterprises. Perhaps most ominously for
opponents of reform, two high-level party officials have recently
advocated cadre changes to rejuvenate the party and a
Bratislava Pravda commentary has called for a "frontal onslaught"
against "lovers of the old" who want to conserve the outdated
ways of economic management and resist the introduction of
enterprise accountability.
Reform opponents, meanwhile, have been somewhat hamstrung in
their efforts at rebuttal. To avoid angering Moscow, they have
had to avoid critical references to Soviet policies, pointing
instead to examples outside the Soviet Bloc and warning vaguely
of the problems of reform. China provides a convenient target
for criticism, as demonstrated in a recent article in the party
newspaper, Rude Pravo, on protests by Chinese students against
the "dangerous excesses of the extensive changes in the country's
political and economic life." This treatment of the abuses of
the Chinese economic experiment comes at a time when Eastern
Europe is closely following developments in China. The implicit
message is that the pro-reformers should look at the difficulties
that reform has produced in China before foisting change on
Czechoslovakia.
Winds of Change from Moscow
The chilly atmosphere surrounding talks in Moscow earlier
this fall between Soviet party officials and leaders of nearly
the entire Czechoslovak propaganda apparatus, including hardline
party secretary Jan Fojtik, may reflect Soviet pressure on Prague
to loosen control of the media to allow for more debate on social
and economic problems. The meeting, which reportedly focused on
the media's role in supporting "economic acceleration," was
termed by the Soviet press as "frank and businesslike," a
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diplomatic phrase denoting major differences of opinion and not
used to describe talks between the Czechoslovaks and Soviets
since the late 1960s. Although it is uncertain what caused the
tensions, the Soviets may have prodded their guests to emulate
Gorbachev's policy of opening up the Soviet media to reform
advocates. A US Embassy source also reported that Fojtik was
disturbed by the atmosphere of change he saw in Moscow.
By contrast, the Soviets appeared much more friendly during a
later visit to Moscow by Milos Jakes, party secretary in charge
of the economy and an advocate of limited economic innovation.
Gorbachev met with Jakes, who is rumored to have carried with him
a so-called "Wise Men's Report" -- a document prepared by
government experts allegedly detailing Czechoslovakia's economic
problems and proposing such remedies as price reforms,
producer-consumer contracts, and increased responsibilities of
managers for the performance of their enterprises. Jakes may
have tried to score points with Gorbachev by presenting himself
as a proponent of change, although the US Embassy reports that
Jakes is rumored to have returned from the meeting disappointed
by the Soviet leader's refusal to even talk about Czechoslovak
economic issues.
A Central Committee plenum earlier this month was to have
discussed the "Wise Men's Report," reportedly weakened by.the
excision of all its innovative elements, and to have pondered how
much of the Gorbachev agenda to adopt as its own, according to a
highly-placed US Embassy source. This source indicated that
Czechoslovak leader Husak was concerned to strike the right
balance between responsiveness to the Soviet example and
avoidance of significant, potentially destabilizing changes.
While Husak, in his remarks to the plenum, did voice some
criticism of the economy and mentioned certain "experimental
changes in some sectors" to be implemented next year, he avoided
any implication that sweeping changes were coming soon. Husak
and others in the leadership apparently have determined that the
situation has not become critical enough to force them to take
more determined action even though they recognize that they are
out of step with Gorbachev and thus need to make some
demonstration of loyalty.
The same perception of Moscow's displeasure with Prague may
also be behind recent rumors of sweeping leadership changes. One
such rumor in October predicted an imminent visit to Prague b
Gorbachev to preside over a new Czechoslovak leadership.
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Outlook
There are many reasons for the Prague leadership to initiate
major adjustments in the Czechoslovak economy. The need to
increase productivity and efficiency, meet Soviet goals for the
CEMA 2000 program of scientific and technological modernization,
and fulfill the plan for continued growth is a powerful incentive
for economic innovation. The Czechoslovaks probably also feel
some pressure to meet increased Soviet export obligations.
Ingrained caution and fears of social upheaval accompanying
economic change, however, are powerful factors inclining the
leadership to do nothing. Husak and the other Presidium members
preside over a system whose only real attempt at major economic
reform was crushed by the Warsaw Pact in 1968 and whose
leadership and managerial cadre are apparently still dominated by
hardliners and others reluctant to commit themselves to a reform
until Soviet backing is certain. Many, indeed, probably hope
that Gorbachev will fail. In addition, any move to break the
social contract with the workers, for example by tying wages to
output or by closing down loss-making enterprises, could result
in open disaffection and sabotage through even poorer work
discipline.
The present leadership configuration will probably have to
change or, at the very least, the hardliners will have to be
neutralized before the Czechoslovak economy will undergo major
changes. It is unlikely that Moscow will soon push Prague to
make such potentially disruptive changes or intercede forcefully
enough in the Czechoslovak squabbles to silence hardliners. But
even though major innovation may be unlikely in the near future,
the experimental changes announced at the recent plenum and
scheduled to take effect next year suggest that the pragmatists
have become more successful in making themselves heard. Their
success in moving the leadership to introduce economic
innovations probably hinges on the success of Gorbachev's reform
efforts in the Soviet Union. If his drive to revamp the Soviet
economy gains momentum, the debate over economic change in
Czechoslovakia probably will heat up as reform advocates,
emboldened by his example, speak their minds and push for even
more adjustments in the system. This may, in time, provoke a
clash within the party that could lead to the ouster of the most
hardline elements in the bureaucracy and improve the chances for
substantive economic change.
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SUBJECT: Czechoslovakia: Pondering Reform
Distribution:
Original - Donald Gregg, Asst. to Vice Presient
1 - Robert Baraz, State Dept.
1 - Charles Smith, State Dept.
1 - Martin Wenick, State Dept.
1 - Barry Lowenkron, State Dept.
1 - John Evans, State Dept.
1 - Tom Simons, State Dept.
1 - Bill Courtney, State Dept.
1 - Paula Dobriansky, National Security Council Staff
1 - Harvey Shapiro, Treasury Dept.
1 - Frank Vargo, Commerce Dept.
1 - Wynfred Joshua, The Pentagon
1 - Darnell M. Whitt, The Pentagon
1 - James Morrison, The Pentagon
1 - Lt. General D. A. Vesser, The Pentagon
1 - John Boris, State Dep .
1 - Alois Avizienis, INR
1 -
1 - NIO Europe--7E62
1 - D/Executive Staff--O/DCI-DDCI -- 7D6015
1 - D/EURA
1 - DD/EURA
1 - AC/EURA/EE
1 - C/EURA/EE/CE
5 - CPAS/IMC/CB
1 - DI/PES--2G25
1 - DDI
1 - EURA/PS
1 - SOURCING
4 - One to each Branch
1 -
1 - EURA/EE Chrono
1 - EURA/EE/CE Chrono
1 - EURA/EE/CE Production
1 - LDA/USSR-EE
1 - DO/SE
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