THE SOVIET ECONOMY: PERFORMANCE IN 1975 AND PROSPECTS FOR 1976

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP08S01350R000602050002-3
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 31
• Document Creation Date: December 22, 2016
• Document Release Date: March 15, 2012
• Sequence Number: 2
• Publication Date: May 1, 1976
• Content Type: REPORT

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F
Research Aid
The Soviet Economy: Performance in 1975
and Prospects for 1976
ER 76-10296
May 1976
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THE SOVIET ECONOMY: PERFORMANCE
IN 1975 AND PROSPECTS FOR 1976
1. Although the Soviet economy suffered its most serious setback under
Brezhnev in 1975, the leadership could ascribe the two major problems areas to
factors outside of Moscow's control.
? Internally, the weather caused the worst harvest of the Brezhnev era
resulting in a disastrous agricultural year, which retarded economic
growth.
? Externally, a recession-induced decline in the Western demand for Soviet
exports, coupled with increased grain imports, led to a fourfold increase
in the country's hard-currency trade deficit.
On the more positive side, the rate of increase in consumer welfare was the same
as in 1974, and the economy now is so large that the traditionally favored industrial
and military sectors were hardly affected by last year's problems. Because of time
lags, however, industry's performance will be down in 1976 as flows of raw materials
from agriculture decline. Relatively moderate goals are embodied in this year's plan.
2. The 1975 harvest was the lowest in a decade. Grain production was less
than two-thirds of the planned goal, with livestock especially hard hit by feedgrain
shortages. Notwithstanding the cancellation of export commitments to Eastern
Europe, extensive purchases abroad, and stringent conservation measures, the regime
will be unable to make up the shortfall. Contracts signed since last July for foreign
grain and soybeans from the 1975-76 crops totaled 32 million tons as of 4 May
1976; about 20 million tons of this total were delivered by the end of April 1976.
3. The reverses suffered last year are, reflected in the current defensive tone
of Soviet ideologues. During the past six months or so, Moscow's spokesmen have
combined a reluctance to discuss their own economic problems candidly with
heightened, at times even acerbic, criticism of Western economic difficulties.
4. Major economic indicators for 1975:
? Growth in gross national product (Western concept) slumped to about
2-1/2%, compared with the 4% annual average rate of growth during
1971-74.
May 1976
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? The poor grain harvest dragged total agricultural output down by 9%.
As a result, the leadership's ambitious livestock program has been put
into a holding pattern for the next several years.
? Industry turned in a respectable performance with a rate of growth close
to 6-1/2%, compared with a 5-1/2% annual average rise during 1971-74.
? Consumers enjoyed their highest level of living with total consumption
increasing 2-1/2% on a per capita basis, .even though this rate of growth
was only half that achieved in 1973.
? Foreign trade turnover rose 35% in value with much of the growth
accounted for by sharply rising imports of Western technology,
equipment, and grain. Since Soviet exports failed to increase
appreciably - because of the economic slowdown in the West -
Moscow's hard-currency trade deficit deteriorated dramatically, from
$900 million in 1974 to more than $5 billion last year.
5. In planning for 1976, the Soviet authorities have had to cut back targets
to account for shortages arising from the shortfall of agricultural products in 1975.
The goals for 1976 generally are realistic with one possible exception - agriculture.
Although a statistical rebound from last year's agricultural shortfall is indeed
likely, it is questionable whether the output of grain will reach the high level now
projected.
? The implied planned increase in gross national product of 4-1/2% assumes
above-average weather conditions in the major agricultural areas. As of
the end of April, prospects were average, but the many uncertainties
still to be decided could shift the results either way, possibly dramatically.
A bumper harvest cannot be excluded at this time if all goes well as
the year progresses; by the same token, deleterious weather conditions
could result in a serious shortfall in grain production.
? The 4-1/2% projected increase in industrial output is the lowest planned
for this sector since World War II. This reflects anticipated shortages of
raw materials from agriculture and continuing lags in bringing new plant
and equipment on stream.
? Growth in total investment is to be reduced to 3-1/2%, almost the lowest
rate of increase since the war. The major emphases are to be on finishing
uncompleted projects and expanding production capacity by replacing
obsolescent equipment.
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? The availability of consumer goods and services will grow at the lowest
rates since the ouster of Khrushchev, and increases in wages and salaries
will be held to 3% to restrain inflationary pressures.
? Another substantial balance-of-trade deficit with the West is almost
certain this year. Deliveries of machinery and equipment ordered from
the West during 1974-75 will remain high this year, and the 1976 bill
for grain imports will be about $2.2 billion.
6. A year ago we estimated that in 1975 relatively good internal economic
growth coupled with a strengthened external economic position would permit the
leadership to postpone reforms needed to attack the economy's endemic problems.
Difficulties persist in the areas of productivity, introduction and assimilation of
new technology, management and administration, and worker motivation. A year
later no significant progress has been made nor have last year's agricultural problems
focused Moscow's attention any more sharply on these matters. As the recent party
congress demonstrated, no substantial movement is likely toward the adoption of
reforms for rectifying these continuing problems, at least until new people move
into key leadership positions. But even new personalities convey only the potential,
not the probability, that significant reform measures might be implemented.
Economic Results in 1975'
7. Last year the growth rate of gross national product (GNP) declined for
the second year in a row, falling to 2.3% from the 3.7% level registered in 1974
(see Table 1). Although the benchmark for this lackluster performance was the
exceptionally good record achieved in 1973, the 1974-75 results were well below
the historical trend of the past decade. Last year's 8.8% drop in agricultural
production - the third decline in four years - was instrumental in pulling down
aggregate output because agriculture represents about one-fifth of GNP.
Nevertheless :
? Agriculture's problems were largely restricted to that sector. The decline
in overall growth was less than in similar harvest shortfalls in the past
because of the grain crop's diminished share of GNP. More important,
1. A summary of economic indicators is shown in the Appendix.
3
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to minimize the impact, Moscow took prompt action, such as releasing
reserve stocks, canceling exports, and arranging for imports.
? Industrial production held its own by growing by an estimated 6.3%,
somewhat better than the annual average rate of increase of the previous
four years. In contrast to prior years with harvest shortfalls, there were
no press accounts last year of the emergency transfer of industrial
workers, trucks, and railroad cars to the countryside. This may explain
in part the relatively good performance of industry in 1975 compared
with previous drought-stricken years.
? Consumers enjoyed the highest level of living in Soviet history with
apparently far fewer food shortages in the short term than previously
associated with crop failures. The Soviet press showed less evidence of
consumer concern or displeasure with conditions than would normally
have been expected. The handling of public relations appears to have
been more sophisticated than earlier. Throughout the summer the regime
sought to minimize the seriousness of the drought problems, giving few
details and reassuring consumers about the adequacy of food supplies.
Earlier campaigns and sloganeering to mobilize the population were
largely avoided. Instead, the Soviet propaganda apparatus went into high
gear depicting the current problems of the capitalist economies,
particularly those in the industrialized West. By such diatribes Moscow
sought to deflect domestic attention from last year's economic problems
and to avert the criticism that is certain to mount as the full import
of the 1975 crop failure impacts on the Soviet consumer this year.
8. The regime probably recognizes that the economy has bounced back
vigorously from weather-related crop failures numerous times in the past. The
attitude expressed repeatedly at the 25th Party Congress in February-March 1976
was (1) the weather was the main villain in 1975, (2) everything possible was
done to minimize the losses, and (3) future growth is assured by following the
policies that have resulted in the development of the USSR into the second most
powerful economy in the world. Stressing the role of weather, Brezhnev told the
congress:
? The congress delegates know that the development of agriculture in the
past 5-year plan period was carried out in a very difficult struggle with
the elements. Of the 5 years, only one, 1973, was good, and 2 years,
1972 and 1975, were marked by unprecedented droughts. Our villages
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have not faced such an unfavorable combination of circumstances in any
5-year plan period. Decisive measures adopted by the party, the strenuous,
and with no exaggeration, heroic labor with which the collective and
state farms responded to the appeal of the Central Committee,
significantly improved the situation. On the whole, agricultural
production has been increasing.'
USSR: Growth of GNP, by Sector of Origin'
Average
Prelim-
Average
Annual
inary
Annual
1966-70
1973
1974
1975
1971-75
Gross national product,
by producing sector
5.4
7.1
3.7
2.3
3.9
Agriculture2
4.5
14.9
-1.3
-8.8
-0.6
Industry
6.1
6.1
6.3
6.3
5.9
Construction
6.9
3.7
6.1
6.5
6.4
Transportation
6.6
7.3
7.0
6.0,
6.4
Communications
8.9
7.2
7.3
8.0
7.4
Trade
8.2
5.1
5.6
6.8
6.2
Services
4.0
3.5
3.4
3.6
3.4
Other
4.5
5.9
2.6
1.5
3.1
1. Calculated at factor costs.
2. This measure for agricultural output excludes intra-agricultural use of farm products but does not make an
adjustment for purchases by agriculture from other sectors. Value added in agriculture grew by an average of
4.2% in 1966-70, -0.9% in 1971, -8.7% in 1972, 16.4% in 1973, -2.9% in 1974, and -12.0% in 1975.
Industry
9. The 6.3% growth in output was generally in line with industry's record
during the past decade (see Table 2). Behind this creditable overall performance,
however, substantial increases in the production of industrial raw materials offset
the low rate of increase of 2.5% in the consumer nondurables sector - processed
foods and soft goods. Processed food production increased at the lowest rate since
World War II, and the situation was not much different for soft goods. The problem
for this sector in recent years has been largely meeting demand for better quality
and greater assortment rather than merely increasing quantity. The output of
2. Brezhnev's statement, "of the 5 years,... 2 years... were marked by unprecedented droughts," exaggerates
the situation. During the past 50 years or so, droughts of roughly the severity experienced in 1972 and
1975 have occurred several times each decade.
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Average
Prelim-
Average
Annual
inary
Annual
1966-70
1973
1974
1975
1971-75
Materials
6.0
5.6
5.4.
5.9
5.5
Electric power
7.9
6.8
6.7
6.4
7.0
Coal products
2.0
2.0
2.4
2.5
2.3
Petroleum products
and natural gas
7.8
7.2
7.1
7.7
7.2
Ferrous metals
5.5
4.4
4.1
4.5
4.1
Nonferrous metals
8.2
4.2
4.9
5.0
5.0
Forest products
3.5
4.2
3.2
4.6
3.8
Paper and paper-
board
7.2
5.9
4.3
5.0
5.0
Construction
materials
6.4
5.8
4.7
4.7
5.2
Chemicals
8.7
9.2
9.4
11.1
8.8
Machinery
6.1
8.4
8.6
8.6
8.0
Consumer nondurables
6.2
3.0
4.2
2.5
4.6
Processed foods
4.7
3.2
5.7
2.7
3.6
Soft goods
8.0
2.8
2.7
2.4
2.6
consumer durables - a component of the machinery sector - also fell below the
rapid rates of increase registered earlier in the 1970s.
10. Producer durables (the other component of the machinery sector besides
consumer durables and military machinery) also grew slower than the typically
rapid rates usually associated with this sector. Many types of machinery missed
their production targets, partly because supplies of metal products were inadequate,
as evidenced by Soviet press commentary and statements by heads of affected
machine-building ministries. This was particularly true of locomotives, rolling stock,
and agricultural machinery. The output of construction equipment, however,
accelerated last year.
11. The industrial materials sector grew impressively in all branches except
electricity and construction materials. The chemical branch was the star performer,
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posting an 11% increase, and the output of ferrous metals grew by 4-1/2%.
Nevertheless, Soviet requirements for imported steel have not abated, and problems
persist in meeting plans for the assortment of finished rolled products.
Energy
12. Production of primary energy grew by 6.1% last year, somewhat above
the average annual increase recorded during the past decade. Alone among the
industrialized world powers, the Soviets continued to enjoy the comfortable
position of producing enough energy to meet domestic needs as well as providing
a surplus for export. About half of the latter, however, is committed to Eastern
Europe, thus denying the Soviets the option of alleviating part of their huge
balance-of-payments deficit by exporting additional quantities of fossil fuels to
hard-currency areas. Despite this constraint, exports of oil to the West last year
continued to be the USSR's largest single source of foreign exchange, probably
earning $3 billion.
13. The production of crude oil and natural gas exceeded the revised plan
for 1975 but fell , below the original goals for that year by 3% and 10%, respectively.
The absolute annual increases of both fuels were at record levels, primarily - in
the case of oil - because of the rapid development of fields in West Siberia, which
compensated for the leveling off of output in the Urals-Volga region. A near record
7,300 kilometers of gas pipelines were completed in 1975. The further development
of both fuels depends in part on imports of Western technology and equipment;
nevertheless, last September Moscow reportedly postponed half of the 25 major
projects in the oil industry that were under consideration with Western firms. This
decision probably was influenced by uncertainties over the country's balance of
payments.
14. The production of coal last year exceeded the planned target as it'has
consistently during the 1970s. The Soviet electric power industry met its lower,
revised production goal for 1975, but the plan for constructing new generating
capacity was not met. Moreover, the highest rate of development in the industry
is taking place in eastern areas where the potential is the greatest but where demand
is relatively low. These trends mean that lower rates of growth of this energy
source in the areas of greatest need are in prospect during the rest of the 1970s -
factors of considerable importance inasmuch as increased supplies of electricity
will be required if projected increases in labor productivity are to be attained.
Further exacerbating the country's electric power situation, in 1975 were low water
levels in the European USSR and delays in the construction of new powerplants.
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15. As in prior years, the production of
machinery was the bellwether of Soviet
industry in 1975, with technologically
advanced items or those destined for
agriculture leading the way. The 1974 base
level used in making the calculations shown in
Table 3 was in many cases extremely low.
16. The past year witnessed the step-up
in production of a Soviet new family of
third-generation computers. This series, known
as RYAD, is modeled on the early 1960s'
technology of the IBM 360 line. Despite the
rapid increase in machine tool production, the
Soviets have maintained low replacement ratios
with a resulting rise in the share of obsolescent
units. The rate of increase in passenger car
production fell from 22% in 1974 to 7% as
capacity output levels were generally reached
in all automobile manufacturing plants. In
addition to machinery and equipment,
industrial support of agriculture included 14%
increases in the production of both fertilizers
and pesticides.
USSR: Production of Selected
Machinery Items, 1975
Percentage
Increase
1975 over
19741
Computer equipment 32
Numerically controlled
machine tools 25
Automated control systems 15
Instruments 12
Agricultural machinery for
livestock production 12
Chemical equipment 11
Technical equipment for
light industry 10
Grain combines 10
Balers 10
1. All percentages except for grain
combines and balers are derived from ruble
value data, which are believed to contain
upward bias because of high prices assigned
to new or improved products.
17. The chemical industry retained its position among the fastest growing
Soviet industries, but numerous problems beset this favored field: construction
deadlines are frequently missed, capacity is often underutilized because new
technology is poorly assimilated, and the quality and assortment of many final
products still fail to meet modern standards as well as consumer demand. Reflecting
the chemical industry's priority, the Soviets last year placed new orders in the
West for more than $1 billion of chemical equipment - a repetition of their
experience in 1974, caused by both qualitative and quantitative shortcomings in
the domestic equipment manufacturing industry.
18. Soviet ferrous metallurgy in 1975 followed the pattern established in
recent years: a low, steady rate of growth of 4.5% that was insufficient to satisfy
demand. As a result, imports of steel products exceeded exports for the third year
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in a row. Despite some improvement recently, the steel industry - as in the case
of the chemical industry - falls short in terms of quality output, the assortment
of products desired, and efficiency in production. In nonferrous metallurgy, the
major emphasis last year was on expanding aluminum plants east of the Urals and
further developing the important mining complex at Noril'sk in the north.
Agriculture
19. The 1975 harvest was the worst during Brezhnev's decade of leadership.
The official grain production figure of 140 million tons for 1975 was the lowest
since 1965, when needs - especially requirements for livestock feed - were 25%
lower. As grain accounts for roughly one-third of total value of crop.production
in the USSR, this shortfall cut the output value of all crops by one-tenth and
reduced net farm production by about 9%. (see Figure 1).
20. With grain production less than two-thirds of needs, the leadership took
a number of stopgap measures to lower the demand for grain.
? Conservation measures such as feeding reeds, leaves, and other low-grade
fodder to livestock and the transfer of animals from drought to
nondrought areas were taken because the drought not only damaged grain
prospects but cut forage crops as well.
? Export commitments to Eastern Europe, heretofore considered sacrosanct,
were canceled. Such shipments had been running at about 7? million
tons yearly in the 1970s.
? The Soviets contracted for about 32 million tons of foreign grain and
soybeans (30-1/2 million tons of grain, 1-1/2 million tons of soybeans),
largely for delivery through 30 June 1976. For the first time, they
committed themselves to a five-year grain import agreement with the
United States.
? Nonstrategic grain reserves were also used.
? Even so, feed supplies were inadequate, and by late summer, state and
collective farms as well as private owners began distress slaughtering of
livestock; inventories of hogs and poultry by the year's end had dropped
20% and 15%, respectively. As a result, net livestock production
(including changes in inventories) for the year was down 7%, even though
the output of several major livestock categories increased.
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Figure 1
USSR: Percentage Change of Agriculture Output
Total Net Farm Output
1973
1974
1975
Total Crops*
1972
1973
1974
1975
-12 -8 -4 0 4 8 12 16 20 24 28 32
Net Livestock Production**
1972
1973
1974
1975
-12 -8 -4 0 4 8 12 16 20 24 28 32
'Less grain and potatoes used for seed.
"Cross livestock production, including changes in inventories, less grain,
potatoes, vegetables, and milk fed to livestock, and hatching eggs. 569241 4-76
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Despite all these measures, the grain deficit has not been entirely erased. The next
few months, at least until the 1976 crop becomes available, will be characterized
as a period of austerity, conservation, and further decline of livestock inventories
to bring demand into line with estimated supplies. Public dissatisfaction will also
rise, with unrest and civil discontent likely to increase from the level of the first
instances reported this spring.
21. Last year's drought affected other crops in addition to grain. Among
the nongrain crops only the output of potatoes was higher last year than in 1974,
but the 88-1/2-million-ton harvest was lower than the annual average for 1971-74
(see Table 4). In addition to serving as a food, the improved potato harvest will
help somewhat to alleviate the livestock feed deficit as potatoes are particularly
suitable for feeding hogs. Sugarbeet production of 66 million tons was the lowest
since 1963. Sunflower seed and vegetables were down from 1973-74 levels with
sunflower seed production off by almost one-third. Cotton production - the second
highest on record - was the single bright spot in this otherwise dismal picture
for crops.
22. The importance the leadership attaches to the livestock development
program, first unveiled by Brezhnev in 1965, was reflected in efforts to maintain
cattle numbers as high as possible despite the disastrous harvest (see Table 5).
Cattle numbers crept upward slightly while the number of cows held steady at
last year's total of 42 million head. Slaughtering and reduced breeding cut hog
and poultry inventories from last year's levels, but recovery in these categories -
unlike cattle - is relatively rapid given adequate feed supplies. Sheep and goat
numbers dropped back to the annual average of the early 1970s. In terms of
livestock products, the output of meat, eggs, and wool was at record levels.
23. In 1975 the leadership continued to channel massive amounts of resources
into farming. The average annual rate of increase of more than 10% in investment
in agriculture and its supporting industrial branches during 1971-75 was more than
double that in all other sectors of the economy considered as a whole. Deliveries
of fertilizer last year increased by 14-1/2%, in line with the planned goal. Greater
production of both tractors and agricultural machinery was accompanied by the
introduction of new, more productive models and by increased stress on improving
overall quality. Both aspects will continue to rely on advanced technology embodied
in products and processes imported from the West.
Capital Investment
24. A basic feature of Soviet growth has been large expenditures on new
capital formation. In 1975, one-fourth of GNP was devoted to expanding the stock
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USSR: Production of Selected Crops and Livestock Products
Annual
Prelim-
Annual
Average
inary
Average
1966-70
1973
1974
1975
1971-75
Crops
Grain
167.6
222.5
195.7
139.9
181.5
Potatoes
94.8
108.2
81.0
88.5
89.7
Sugar beets
81.1
87.0
77.9
66.2
75.9
Sunflower seeds
6.4
7.4
6.8
5.0
6.0
Vegetables
19.5
25.9
24.8
22.3
22.7
Cotton
6.1
7.7
8.4
7.9
7.7
Livestock products
Meat (slaughter
weight)
Milk
Wool
Eggs
11,583
13,527
14,620
15,200
14,050
80,553
88,300
91,760
90,800
87,445
398
433
461
463
441
Million Head on 1 January
1971
1972
1973
1974
1975
1976
All cattle
99.2
102.4
104.0
106.3
109.1
111.0
Cows
41.0
41.2
41.7
41.4
41.9
41.9
Hogs
67.5
71.4
66.6
70.0
72.3
57.8
Sheep and goats
143.4
145.3
144.7
148.5
151.2
146.9
Poultry
652.7
686.5
700.0
747.7
792.4
674.01
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of new plant and equipment, while less than one-fifth of US GNP went to this
purpose. Investment has long been one of the chief concerns of Soviet leaders;
failure to complete projects - thereby tying up enormous amounts of capital
unproductively - still remains a serious problem despite a continuing campaign
aimed at rectifying it. In 1975 the Soviets plugged away at their dual program
of (1) completing projects that have been under construction for years and
(2) finishing the renovation and expansion of existing plants, many of which have
been undergoing modernization for similar periods of time. Gross additions of new
fixed capital increased by 8%, an improvement over 1974 but still well below the
10-1 /2% increment achieved in 1973 (see Table 6). As in prior years, this retardation
in growth reflects problems in the supply and installation of machinery and
equipment rather than a lack of increases in new construction starts, which was
characteristic of Soviet investment policies of the 1960s. Total new fixed investment
last year grew at a rate somewhat above the average annual rate of increase registered
during the past decade.
USSR: Indicators of Capital Formation
Average
Prelim-
Annual
inary
1966-70
1973
1974
1975
Total new fixed
investment
7.6
4.7
7.1
8.5
Gross additions
of new fixed
capital'
8.3
10.6
4.7
7.8
Backlog of unfinished
construction2
12.1
2.9
6.8
8.3
1. The term "gross additions of new fixed papital" differs from "gross fixed investment" in that it counts only
those investment projects which were completed.
2 Some equipment installed in unfinished plants is included in this category.
Consumer Welfare
25. In general, the consumer was unaffected during 1975 by agriculture's
problems. A reduction in the inventory of processed foods, coupled with the usual
lag between a crop shortfall and a downturn in the output of livestock products,
kept enough food in the marketing pipeline. For the year as a whole, per capita
food consumption increased 1-1/2% and meat consumption was up 1%, reaching
a record level. Only late in the year, in parts of the drought-stricken area, shortages
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of some food products - particularly flour and in some cases sugar - were reported.
An increase in meat prices in the free markets was due not to shortages but rather
to higher incomes and greater demand. The greater availability last year of certain
nonfood consumer goods and services eagerly sought by the Soviet populace may
have helped defuse the potential problems arising from the disappointing harvest.
26. The increase in average wages was down appreciably from 1974, but
nonwage benefits rose enough to maintain the growth in per capita real income
at the pace of a year earlier (see Table 7). Nevertheless, average annual increases
actually achieved during 1971-75 fell short of planned targets as part of the
leadership's policy to restrain inflationary pressures. The populace continued to
display increasing resistance to buying poor quality items or those available only
in limited variety. As in past years, consumers continued to salt away much of
their excess purchasing power. Deposits in savings banks rose by 15% to 91 billion
rubles, or the equivalent of well over one-third of total money incomes compared
with one-quarter of total incomes in 1970.
27. Some progress was made in 1975 in implementing Brezhnev's
much-delayed welfare package. The rise in the minimum wage to 70 rubles a month,
first promised in 1971, was finally achieved last year.' Redemption of state bonds,
which have been frozen since 1958, also began, thus adding 1 billion rubles to
consumer incomes.
28. On a per capita basis, the increase in consumption fell off for the second
year in a row to less than half the rate of growth achieved in 1973 (see Table
8). The Soviet consumer's diet did not improve appreciably even with increased
supplies of meat. Although still impressive, the growth in consumption of consumer
durables was half the 1973 rise. With the completion and virtual attainment of
capacity production at the country's automobile manufacturing plants, Soviet
passenger car production has leveled off at 1.2 million units annually, as has the
share (less than two-thirds) of the output sold to the public.
29. The brightest aspect of the consumption picture was in sales of soft goods,
primarily shoes and clothing. The marked increase may reflect, in part, the
nationwide effort to improve the quality and styling of these items and also a
cut in inventories as consumers respond to price reductions on slow-moving articles.
3. Since 1965 the minimum wage has increased from 50 rubles a month to 70 rubles, maintaining its relative
position at about one-half of the average wage (96-1/2 rubles a month in 1965, 146-1/2 rubles a month
in 1975).
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USSR: Growth of Income and Wages
Average
Average
Annual
Preliminary
Annual
1966-70
1973
1974
1975
1971-75
Real per capita income'
5.8
5.0
4.2
4.2
4.3
Wages of
Nonfarm workers
4.6
3.5
4.5
3.8
3.6
Farm workers
6.5
6.4
5.2
5.4
5.5
1. Soviet definition. In addition to money income, the official series includes incomes in kind and the value of
certain services provided free to the populace.
USSR: Growth in Per Capita Consumption'
Average
Prelim-
Average
Annual
inary
Annual
1966-70
1973
1974
1975
1971-75
Total consumption
4.8
5.1
3.2
2.5
3.1
Food
3.9
6.9
2.1
1.6
2.7
Soft goods
6.5
2.1
2.2
3.7
2.5
Personal services
5.1
4.0
4.9
4.6
4.4
Durable goods
8.9
9.8
9.5
5.1
8.0
In the category of consumer services, the total supply of new housing edged up
by 2.8%; the quantity of new housing was marginally above the average annual
amount built during 1971-74. Per capita living space remains below even Soviet
norms, to say nothing of acceptable levels in other industrialized countries. Little
progress was evident in correcting the endemic problems of Soviet housing deriving
from the country's building practices: faulty construction, shoddy workmanship,
poor design, and monotonous repetition of standardized units nationwide.
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Foreign Trade
30. Foreign trade grew by 35% in value last year following an almost 24%
rise in 1974. Trade growth in volume (constant price) terms was considerably less.
Soviet trade grew in volume by 17% in 1974 and probably by only 10% to 15%
in 1975 when the dollar value of Soviet trade was inflated by (1) higher prices
for imports from the West, (2) increased dollar valuation of Soviet-East European
trade, and (3) a shift in the ruble-dollar exchange rate in favor of the ruble (see
Table 9).
Table 9
USSR: Growth in Total Trade Turnover
Percentage Increase from Previous Year
1971
5
7
1972
10
20
1973
14
34
1974
17
24
1975
10-151
35
31. The dollar value of total turnover (exports plus imports) last year was
more than $70 billion, with the developed Western countries accounting for
approximately $22 billion, or nearly one-third of the total (see Figure 2). Behind
these impressive rates of growth in value terms, the volume of the USSR's foreign
trade grew by lesser rates of increase as inflation in the West and negotiated price
increases in both the USSR and Eastern Europe played an important role. Eastern
Europe remains the major area of trade concentration for the Soviets, accounting
for about one-half of total turnover.
32. The particularly rapid rise of Soviet imports from the developed West
has resulted in large hard-currency deficits in recent years. Last year Soviet
hard-currency imports rose by one-half to more than $14 billion, primarily for
increased amounts of Western machinery and equipment, steel products, and grain
(see Table 10). At the same time, widespread recession in the West limited the
demand for Soviet products in hard-currency areas (see Figure 3). As a consequence,
the USSR incurred a record hard-currency deficit estimated at more than $5 billion
compared with one of $900 million a year earlier.
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Figure 2
USSR: Foreign Trade, by Major Area
Billion US $
Other Communist
Eastern Europe
Less Developed Countries
Developed West
1971
1975
Estimated
569242 4-76
33. The Soviets finance their large and escalating hard-currency trade deficits
through a combination of credits and gold sales. With the conspicuous exception
of the United States, Western governments have extended or backed more than
$11 billion in long-term credits to finance Soviet purchases of machinery and
equipment since mid-1974. The USSR's medium- and long-term debt rose rapidly
last year to at least $7 billion. Debt service remains manageable, as it accounted
for less than one-fifth of Moscow's hard-currency earnings in 1975. The USSR
arranged for more than $3 billion in medium- and long-term credits in 1975,
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USSR: Machinery and Equipment Orders from Western Countries'
by Type
Total
1,575
2,285
4,125
4,040
Chemical and petrochemical
250
440
1,100
1,205
Mining and construction
70
20
765
425
Petroleum and gas, refining
and pipeline3
235
225
510
390
Motor vehicle manufacturing
270
620
335
295
Ships, marine, and port
100
95
280
130
Textiles
45
45
175
185
Electronics
55
30
145
245
Timber and wood processing
110
130
110
25
Metallurgical and metalworking
55
335
105
290
Consumer goods manufacturing
85
180
90
70
Other
300
165
510
780
1. Excluding Finland, which maintains a clearing agreement with the USSR.
2. Rounded to the nearest $5 million.
3. Excludes large-diameter steel pipe.
including at least $750 million in Eurocurrency borrowing. Although the weakness
that developed in the international gold market in the latter part of the year
dampened Moscow's willingness to sell gold, total 1975 sales may have been as
much as $1 billion.
34. Despite the sharp increase in its trade deficit, the USSR last year
continued its policy of heavy purchases of Western technology and equipment to
upgrade its domestic industry. The Soviets signed contracts for more than $4 billion
of such items, primarily with France, West Germany, and Japan. Increased orders
for technology and equipment in the chemical, electronics, consumer goods, and
metallurgical-metalworking industries were only partially offset by the decline in
contracts for mining and construction equipment.
35. According to US data, Soviet trade with the United States more than
doubled to $2.1 billion as US grain deliveries rose by more than $800 million
to $1.1 billion. Soviet imports of US machinery and equipment also more than
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Figure 3
USSR: Hard Currency Merchandise Trade
14
75
Estimated
doubled - to $547 million - as many of the items ordered in 1972-74 were actually
shipped. Soviet exports, however, fell by 21% to $277 million as US demand for
platinum and platinum-group metals declined drastically.
36. Four-fifths of the USSR's intra-Communist trade was with Eastern
Europe, which experienced a rise in the prices of Soviet exports by roughly
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one-third; the charges for Soviet fuel more than doubled. For their part, the East
European countries were able to raise their prices of machinery and other
manufactures shipped to the USSR by an estimated average of 18%. In addition,
Moscow canceled all shipments of grain from the 1975 harvest to Eastern Europe,
which customarily imports about half of its grain requirements from the USSR.
Plans and Prospects for 1976
37. Soviet projections for this year generally are moderate, reflecting the
delayed impact of last year's harvest failure (see Table 11). The consumer will
be hardest hit, but growth of industrial production will be slowed, and the Soviets
will continue to carry a large hard-currency trade deficit. Moreover,,the USSR's
agricultural situation will remain precarious with carry-over stocks of grain depleted,
livestock herds reduced, remaining livestock underfed, and output goals dependent
on above-average weather.
USSR: Growth of GNP, by Sector of Origin'
Preliminary
Plan2
1975
1976
GNP
3.7
2.3
4%
Industry
6.3
6.3
4%
Construction
6.1
6.5
2%
Agriculture3
-1.3
-8.8
8%
Transportation and
communications
7.1
6.1
5%
Trade
5.6
.6.8
3%
Services
3.4
3.6
3%
1. Estimated, at factor costs.
2. Based on Soviet plans for individual sectors; rounded to nearest half percent.
3. This.measure for agricultural output excludes intra-agricultural use of farm products but does not make an
adjustment for purchases by agriculture from other sectors.
38. Highlights of the 1976 economic plan include:
? Improvement in the rate of growth in gross national product to about
4-1/2% from 1975's preliminary estimated rate of 2.3%. Although the
1976 rate of growth is higher than the average annual rate achieved since
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1970, it presupposes that above-average weather conditions will prevail
throughout the major agricultural areas during the growing and harvesting
period.
? A rebound in agricultural growth - from -8.8% last year to 8.7%
in 1976. Considerable recovery is statistically probable from the 1975
shortfall, but a swing of this magnitude is unlikely without markedly
propitious weather conditions.
? A mixed bag for the consumer, with slow growth in soft goods, durables,
housing, and other services and deteri orating diets in terms of quality,
quantity, and variety of foodstuffs as ramifications of the 1975 crop
failure become fully manifest.
? A continued gradual rise in capital investment with the emphasis on
finishing uncompleted projects and channeling additional resources into
agriculture.
? Further growth in foreign trade, particularly with the developed West.
Industry
39. The record low rate of overall industrial output projected for 1976 -
4.3%, or roughly two-thirds of annual plans for industrial production in the first
half of the 1970s - is calculated from similarly low growth rates for the two
major components of Soviet industry. According to Soviet parlance, Group "A"
industry (primarily producer goods) is to increase by 4.9%, whereas Group "B"
industry (largely consumer goods) will grow by 2.7%. The traditional primacy of
heavy industry is thus reaffirmed for the fourth year in a row despite Moscow's
intention at the outset of the last five-year plan (1971-75) to reverse this emphasis.
It is questionable, however, if this represents a policy decision or is the result
of the inevitable working out of economic forces not readily subject to leadership
manipulation.
? The 1975 crop shortfall will deprive the light and food industries this
year of significant amounts of raw materials, primarily fibers and animal
byproducts.
? Heavy industry, as the sector producing investment goods and industrial
materials, including energy, determines the production potential of light
industry.
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? Although the drop in the planned rate of growth of Group "B" industry
is greater than that for Group "A" industry, the target for the latter
is down by a substantial amount. This suggests that the chronic problems
of completing new plants and reaching capacity operation, when coupled
with a slowdown in the rate of growth of the industrial labor force,
will restrict industrial growth in both sectors.
40. As in prior years, the 1976 goals for fuels and power were among the
few that have been released thus far. All are relatively moderate and consistent
with historical trends. The entire increase in crude oil output to 520 million tons -
10.4 million b/d - and 40% of the growth in the production of natural gas to
313 billion cubic meters are to come from West Siberia; Western technology and
equipment will be important, but not critical, especially for pipeline construction,
in realizing these targets. The reduced rate of increase in electric power of only
5.5% is consistent with past trends in the planned growth of industrial output
and electric power, but it may have an adverse effect on the industrial labor
productivity goal, which is to account for 80% of the increase in industrial output.
Productivity gains in this sector are dependent on the introduction of new
equipment and advanced technology that require accelerated supplies of electric
power per unit of industrial output.
41. The chemical and petrochemical industry continues to receive high
priority this year, with output scheduled to rise by 7%. State investment in the
industry is planned to increase by an impressive 25%, primarily in the branches
producing fertilizers and polymeric materials. In contrast, a 10% rise in investment
in metallurgy indicates more moderate prospects for this branch of industry.
42. This year Moscow plans to commission the initial production facilities
at the Kama Truck Plant, the most celebrated construction project of the 1971-75
plan period, but only limited production is expected before 1977. Lower growth
rates in prospect for tractors and other agricultural machinery may reflect a
retrenchment in investment in these branches, but the emphasis on quality and
on improving the product mix probably plays a role as well.
Agriculture
43. The 8.5% growth goal in agricultural output will depend on an
exceptionally strong recovery in grain crops. It is premature to predict even roughly
the size of the 1976 grain crop. Because spring growing conditions are so important,
it will be at least mid-July before reliable estimates can be made. Winter grains
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normally account for roughly one-third of grain production. Unusually low
temperatures and inadequate snow cover have caused substantial winterkill in the
southern Ukraine, lower Volga Valley, and northern Caucasus; nationwide,
winterkill probably will exceed the usual 15% to 20%. In the spring grain areas, soil
moisture has improved markedly since last fall, but it remains below normal in the
Volga Valley and Urals regions, which were especially hard hit by drought last year.
44. If weather conditions enable the Soviets to harvest considerably more
than the roughly 175 million tons of grain needed for minimum domestic
requirements, they can (a) increase the weight of animals being marketed, (b) begin
the process of rebuilding livestock herds, and (c) start to replenish carry-over grain
stocks.' If the harvest merely meets minimum needs, expansion of herds would be
postponed.
45. Another harvest failure would force further large reductions in livestock
numbers and additional massive imports of grain from hard-currency areas,
worsening the large trade deficit anticipated in 1976. In turn, this might force the
USSR to make substantial cutbacks in nonagricultural imports from the United
States and other hard-currency areas to avoid rapid buildup of foreign debt.
46. Because of the time required to rebuild livestock inventories, the most
that the Soviets can hope for in this sector in 1976 is to limit their losses and to
prepare for expansion in the years to come.
Capital Investment
47. Growth in total investment is to be reduced to about 3'/a% from the 8.5%
realized in 1975. Concomitant with these lowered expectations is the projected
continuation of past patterns rather than new initiatives or a restructuring of
priorities. Additional effort is to be directed at reducing the excessive amount of
capital tied up in unfinished investment projects, and the share of producer durables
scheduled to replace obsolescent equipment is to be increased. Agriculture and its
supporting industries are to maintain their priority status, which funnels more than
one-third of total investment to these claimants.
4. Although the grain production target this year is 205-210 million tons, actual requirements are estimated
as 175 million tons because of reduced livestock inventories.
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Consumer Welfare
48. In 1976 the Soviet populace faces the smallest gains in the Brezhnev era.
The rate of increase in per capita real income (3.7%) will decline from the 1974-75
level, and the rise in the average wage for workers and employees will be held at a
low 2.7%. Both indicators reflect the limited prospects for increased supplies of
consumer goods and services-the lowest in more than a decade-as well as the
leadership's determination to restrain inflationary pressures. The volume of retail
trade is slated to expand by no more than 3-1/2%. Although the increment planned
in new housing is one of the smallest in years, a measure of this target's realism is the
likelihood that it will be met.
49. Probably the most serious problem in 1976 will be an expected
one-quarter drop in per capita meat consumption. This decline will return the
consumer to the level of the late 1960s. Although per capita consumption of meat
has increased 21% since 1970, and 48% since 1960, the average Soviet citizen still
eats only two-fifths as much meat as his US counterpart and three-fourths as much
as the average Pole or Hungarian.
50. In addition, an expected downturn in egg and milk production from 1975
levels, albeit less severe, will further erode the quality of the Soviet diet. This
decrease in the availability of livestock products will temporarily reverse the steady
decline in the share of starchy staples in the average Soviet diet. Bread and potatoes
currently account for one-half of the calories consumed (see Figure 4).
51. Domestic and imported feed supplies will not be sufficient to support
livestock inventories at the 1 January 1976 level. Animals will be slaughtered at
lighter-than-normal weights. Production of meat will therefore drop off during the
first part of the year, and sporadic shortages in certain areas will occur. By spring,
herds will be small enough to be supported by seasonal grazing and available feed.
Meat production,. however, will then be at its lowest- level, and prolonged shortages
of meat-especially in rural areas-will be common throughout the summer. Even as
the 1976 crop becomes available, efforts to rebuild the average weight of animals to
support breeding will keep meat production at depressed levels.
52. The USSR probably will import meat in 1976 to augment domestic
supplies. Non-US meat supplies appear adequate to permit the USSR to buy at least
one-half million tons, equaling 1975 purchases, and perhaps to double that amount.
Purchases of one million tons - about as much as available Soviet port and storage
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facilities could handle-would bol-
ster per capita meat supplies by
roughly 10% but would add about
$1 billion to the Soviets' already
large import bill.
53. Other foods generally
should be available. There should
be no prolonged bread shortages
even though the quality of bread
will be lowered-as already seen in
some markets-by increasing the
extraction rate in milling grain into
flour. Distribution failures will pro-
duce spot shortages, however, and
supplies of flour at retail outlets
will be generally limited. The ef-
fects of the 1975 short-fall in sugar
beet production should be largely
offset by stepped-up imports of
sugar from Cuba and the Philip-
pines. Similarly, although the out-
put of sunflower seed fell in 1975,
scheduled imports of soybeans and
the availability of other oilseed
crops should be sufficient to avoid
vegetable oil shortages.
54. Consumer reaction to
the expected meat shortages is dif-
ficult to predict. The Soviet people
have traditionally accepted pro-
grams to build the military and
boost industrial production as justi-
fying a slow growth in living stand-
ards, but shortages and price increases
Figure 4
Composition of Diets, 1974
3,250 Calories per day per person
3,350 Calories per day per person
Excluding butter
569244 4-76
stemming from Krushchev's agrarian policies
sparked considerable civil discontent in the early 1960s. As of mid-May of this year,
the Western press was reporting food shortages -- especially of meat - work
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slowdowns and vandalism in the markets as the people went beyond grumbling and
other verbal manifestations of their discontent. The current Soviet leadership,
however, has demonstrated its awareness that material incentives and rising
living standards are crucial in the further development of a modern industrial state.
Foreign Trade
55. According to the 1976 plan, which calls for 13.6% growth in the ruble
value of trade, the foreign trade sector will maintain its primacy as the most rapidly
growing component of the Soviet economy. As in recent years, the actual rise in the
value of trade this year could exceed this goal by a significant margin. In their
hard-currency trade, the Soviets probably will run a deficit on the order of $3 to $5
billion.
56. Other than the chronic imponderable factor of possible large grain
imports, the 1976 import picture is fairly clear. Imports from the West will continue
to rise because of heavy deliveries from the $8 billion of orders in plant, machinery,
and equipment placed during the past two years. The grain bill will be about $2.2
billion under existing contracts, and shipments of large-diameter pipe will remain
substantial. A large and possibly rising volume of imports of chemical and
petrochemical machinery and equipment will be realized in support of the
leadership's effort to revitalize and modernize the industrial sector. On the export
side, Soviet prospects are primarily dependent on the degree and pace of economic
recovery in the West, which will determine the extent of the rise in demand for
Soviet products, largely fuels and industrial raw materials.
57. Because sluggish economic recovery in the West will continue to be a
constraining force, a sizable hard-currency trade deficit will develop again in 1976.
The USSR, as a result, may have to resort to substantially more borrowing in 1976.
With its solid credit rating, Moscow should not have any major difficulty in attracting
loans, but it would prefer not to pay high interest rates on massive short- and
medium-term loans, wishing to retain its flexibility in the event of further
agricultural failures. In any event, the Soviets will end 1976 with a substantially
higher external debt, although it will still be within manageable limits.
58. We believe the Soviets will continue to sell gold as they did through most
of 1975, despite the decline from the record gold price of $ 197.50 per ounce in
1974 to the current level of around $130.00. Unless the Soviet hard-currency trade
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position improves substantially, sales could approximate 150 tons-worth more than
$600 million at today's prices. Moscow could sell even more without disturbing its
reserves and probably will if the price is right.
59. While equipment purchases contracted in previous years will keep 1976
imports high, Moscow is apparently reducing its planned cash outlays for
nonmachinery purchases and for machinery orders when credit is unavailable. This
effort will have little immediate effect on Soviet industrial production because of
the long delivery periods for most machinery. We regard current attempts to reduce
imports as temporary. The USSR's longer term policy of increasing imports of
high-technology Western products apparently has not changed. Because of current
hard-currency stringencies, however, the availability of attractive financing will be an
increasingly important factor in determining where equipment orders are placed. US
firms will be especially affected because US industrial exports to the USSR are
financed primarily by high-interest credits. The Soviets are able to get most, if not
all, needed equipment from third countries under long-term, low-interest credits.
Soviet imports from the United States will remain high in any case, on the basis of
continued US deliveries of grain, machinery, and equipment already ordered.
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USSR
US
USSR
USSR
1974
1975'
1975
1976 Plan
GNP
Billion 1973 US $
722.8
1,256.2
N.A.
N.A.
Population, midyear
Millions
252.1
213.5
254.6
257.1
Per capita GNP
1973 US $
2,867
5,880
N.A.
N.A.
Industrial production
1970 = 100
124.7
106.5
132.5'
138.2
index
Net agricultural
production index
Bread grain S2
Million metric tons
79.3
58.6
60.8'
N.A.
Feed grains3
Million metric tons
90.3
163.9
58.4'
N.A.
Potatoes
Million metric tons
81.0
14.3
88.5
N.A.
Meat
Million metric tons
14.6
21.5
15.2
N.A.
Total labor force4
Millions
133.9
94.8
136.1
138.4
Nonagricultural4
Millions
98.7
81.4
101.5
104.4
Agricultural
Millions
35.2
4.4
34.6
34.0
Total investment
1970 = 100
128.8
N.A.
139.8
144.5
index-'
Per capita con-
sumption index
Crude oil, including
natural gas
liquids
Natural gas
Million barrels
per day
Billion cubic feet
9,200
20,100
10,215
11,053
Electric power
Billion kilowatt-
976
2,200
1,038
1,095
Coal
hours
Million metric tons
684.5
584.8
701
715
Primary energy pro-
Million metric tons
1,548
2,165
1,643
1,734
duction
Crude steel
of coal equivalent
Million metric tons
136.0
105.9
141.0
147.0
Cement
Million metric tons
115.0
63.1
122.0
126.0
Copper, refined
Million metric tons
1.25
1.6
1.35
1.416
Chromite
Million metric tons
1.56
....
N.A.
N.A.
Manganese ore
Million metric tons
8.5
....
N.A.
N.A.
Iron ore
Million metric tons
225.0
82.6
233.0
N.A.
Phosphate rock
Million metric tons
24'
44
25'
N.A.
Automobiles
Thousand units
1,119.4
6,713.0
1,201.0
N.A.
Trucks and buses
Thousand units
726.9
2,272.2
763.0
N.A.
Electric generators
Thousand kilowatts
16,000
N.A.
17,100
N.A.
Machine tools, metal
Thousand units
226.0
78.0
232.0
N.A.
cutting
Declassified and Approved For Release 2012/03/15: CIA-RDP08SO135OR000602050002-3
 Declassified and Approved For Release 2012/03/15: CIA-RDP08SO135OR000602050002-3
USSR
US
USSR
USSR
Unit of Measure
1974
1975'
1975
1976 Plan
Instruments and
Million rubles, 1967
3,798
N.A.
4,300'
N.A.
measuring equipment
Computers and cal-
prices
Million rubles, 1967
2,221
N.A.
2,800'
N.A.
culating machines
Refrigerators
prices
Thousand units
5,426
4,577
5,600
N.A.
Washing machines
Thousand units
3,075
4,228
3,300
N.A.
Radios
Thousand units
8,753
34,516
8,400
N.A.
Television sets
Thousand units
6,569
10,637
7,000
N.A.
Vacuum cleaners
Thousand units
3,319
7,640
N.A.
N.A.
Sewing machines
Thousand units
1,366
N.A
N.A.
N.A.
Gold production
Thousand troy ounces
8,841
1,030
9,902
N.A.
Imports, f.o.b.
Million US $
24,861
96,140
37,900'
N.A.
Exports, f.o.b.
Million US $
27,374
107,191
32,600'
N.A.
I. Preliminary.
2. Wheat and rye.
3. Corn for grain, oats, barley, and pulses.
4. Including armed forces.
5. New fixed investment.
6. Calculated from five-year-plan data.
Declassified and Approved For Release 2012/03/15: CIA-RDP08SO135OR000602050002-3