USSR REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88T00799R000200160003-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 38
• Document Creation Date: December 23, 2016
• Document Release Date: January 11, 2012
• Sequence Number: 3
• Publication Date: May 1, 1987
• Content Type: REPORT

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USSR Review
May 1987
Secret
SOV UR 87-003X
May 1987
Copy
595
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fie , 't Intelligence 25X1
USSR Review
May 1987
articles are welcome
The USSR Review is published by the Office of
Soviet Analysis. Comments and queries regarding the
Secret
SOV UR 87-003X
May 1987
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Contents
Soviet Afghan Policy Since January 1987L
Moscow's Afghan policy this year has featured both apparent
attempts to find a political compromise and an intensification of
coercive measures against Pakistan. These different, but not ulti-
mately contradictory, directions in which Soviet policy is now
moving suggest that Moscow is impatient with the status quo in
Afghanistan and anxious to end its military involvement. The
Soviets have not, however, been able to figure out how to accomplish
this on politically acceptable terms; that is, a withdrawal that leaves
behind a Communist-dominated government.
iii Secret
SOV UR 87-003X
May 1987
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Moscow has capitalized on the emergence of democratic govern-
ments in Latin America by increasing high-level exchanges and
aggressively courting public opinion. General Secretary Gorbachev's
proposed tour through Latin America-probably in late 1987 or
early 1988-will be the most dramatic example of Moscow's
increased attention to the area. While the immediate results of the
visit may be mixed, the Soviets appear to believe that their new
approach will earn near-term political payoffs and also further their
long-term goals in the region.
Moscow's Relationship With Riyadh: Progress at a Snail's Pace
Soviet officials, hoping to increase their influence in the Persian
Gulf and undermine Saudi Arabia's pro-Western orientation, are
optimistic about reviving long dormant Soviet-Saudi diplomatic
relations. The Saudis, however-angered by the continuing Soviet
occupation of Afghanistan and critical of other Soviet internal and
foreign policies-have remained cautious. They have been willing to
deal with Moscow on limited matters of mutual interest, but mostly
through intermediaries or direct ambassadorial-level contacts in
third countries.
The Academy of Sciences in Gorbachev's 25
Modernization Campaign
General Secretary Gorbachev is looking to the Soviet Academy of
Sciences to help modernize the nation's industrial base and meet the
technological challenge of the West. Serious internal problems and
its inherently limited role in technology development and diffusion,
however, impair the Academy's ability to meet party expectations.
Implementation of measures to revitalize the Academy and
strengthen its ties to industry faces formidable obstacles, and most
accomplishments the Academy may make will not be felt in the
economy until well into the 1990s.
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Notes
Delays in Developing the Astrakhan' Gasfield
31
Soviet lack of equipment, technical skills, and experience appropri-
ate for deep drilling for sour gas is setting back by years the
program for production of gas, condensate, sulfur, and carbon
dioxide from the Astrakhan' gasfield.
Poor First-Quarter Eco
nomic Results
37
Soviet Trade Surplus Up
in 1986
39
Ligachev's Number-Two
St
anding Begins To Sli
p
UK Wins Soviet Chemical Contracts
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Soviet Afghan Policy
Since January 1987
Since the beginning of the year, Moscow's Afghan
policy seems to be moving in two, but not ultimately
inconsistent, directions. The Soviets' efforts to find a
compromise that might enable them to withdraw their
troops while leaving behind a Communist-dominated
regime have been coupled with an apparent intensifi-
cation of coercive measures against Pakistan.
In Search of a Compromise?
Soviet officials have continued to state privately that
Moscow wants to bring Soviet troops home from
Afghanistan because of various international and
domestic costs and that, to achieve this, Moscow is
prepared to be flexible:
The Soviets have taken several actions this year that
seem to bear out the views expressed in such
statements:
? Moscow had Kabul announce a six-month cease-fire
beginning 15 January and, in a reversal of previous
policy, "national reconciliation" proposals that
could lead to a coalition government with resistance
participation. The Soviets took this step despite the
risk that these initiatives would undermine the
morale and unity of the Afghan Communist Party.
? At Geneva in March, the Soviets had the Afghans
offer an 18-month timetable for Soviet troop with-
drawal-down from three years at last summer's
Geneva session. The Soviet Ambassador in Brussels
suggested to a European Community representative
in April that Moscow is now considering a further
reduction to 11 months.
? The Soviets,
have been in touch with former Afghan King Zahir
Shah, about participating in and possibly heading an
interim government that would oversee Soviet with-
drawal and the formation of a permanent govern-
ment. (The King is not known to have agreed to such
a plan.)
? Although the Soviets have told the United States
and Pakistan that they will not take Afghan party
loyalists with them when they leave and that the
party will have to be at the center of a new
government, a UN official told Zahir Shah that
Moscow has decided to take several hundred regime
members back to the Soviet Union.
Coercion Instead of Compromise?
With the failure of the regime's cease-fire and nation-
al reconciliation initiatives, the Soviets and the insur-
gents are squaring off against one another this spring
as they have in earlier years. Because of Soviet hints
that military pressure might be intensified if the
initiatives fail, one hypothesis has been that*Soviet
operations this year might be particularly intense. So
far, however, there has been no observable buildup of
troops, equipment, or supplies to suggest Moscow is
planning an extraordinary offensive. As is usual in the
spring, Soviet and Afghan forces have conducted a
number'of medium-size operations, most of them
directed at insurgent arms caches and supply lines.
The Soviets are continuing to improve their military
infrastructure and show no sign of removing combat
or support units.
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There is some evidence that the Afghan Govern-
ment-presumably at Soviet direction-is trying to
move more forces to the Pakistani border to stop the
flow of insurgent supplies. So far these measures have
had no military effect. However, manpower shortages
continue to plague the regime, and the US Embassy
in Kabul reports intense public opposition to renewed
government conscription efforts-which were suppos-
edly halted as part of national reconciliation-and
opposition within the regime to attempts to move
State Security (KHAD) and militia troops from Kabul
to the frontier.
Direct Pressure on Pakistan. The most visible shift in
policy has been a decision to step up air attacks
against insurgents and refugees across the border in
Pakistan, resulting in greatly increased Pakistani ca-
sualties. While most earlier border violations occurred
in support of ground operations near the border, these
new attacks-probably by Afghan planes, but pre-
sumably under Soviet direction-were not associated
with such operations:
? On 26 and 27 February, on the eve of the resump-
tion of the Geneva proximity talks, air attacks on
Afghan refugee camps killed over 100 and injured
? On 16 April an F-16 downed an Afghan SU-22
fighter-bomber, which also crashed just across the
border in Afghanistan.
At the same time, incidents of sabotage and subver-
sion inside Pakistan have increased in boldness and
frequency:
? On 19 February a bomb blast near a school in
Peshawar led to widespread demonstrations against
Afghan refugees. Coupled with other sabotage inci-
dents in the area, it appears to have resulted in a
permanent deterioration of relations between Af-
ghan refugees and local Pakistanis, according to
American Consulate reporting. In March, however,
the number of incidents in the Peshawar area
declined.
? On 9 April a car bombing in Rawalpindi killed 16
people and wounded some 40 others. It was the first
major act of sabotage attributed by Pakistan to
Afghan agents outside the frontier area.
the Pakistani Interior
Ministry is pessimistic about its abi 1 ity to prevent
future bombings and concerned that support for the
war among the Pakistani population is eroding.
over 300
? Further air attacks occurred over the next several
weeks, with the most damaging at Teri Mangal on
23 March when some 120 were killed.
? Afghan aircraft recently dropped leaflets along the
border warning of further attacks unless the refugee
camps were moved out of the area.
? In mid-March, the Soviet Ambassador in Islamabad
told Western diplomats that recent cross-border
attacks were conducted in "hot pursuit" of insur-
gents, and hinted that Stinger training sites might
be attacked as well, according to US diplomatic
reporting.
Pakistan has reacted by increasing air patrols near the
border and may be adhering less closely to restrictive
rules of engagement for intercepting intruding
aircraft:
? On 31 March Pakistani F-16s shot down an Afghan
AN-26 military transport, which crashed in Afghan
territory.
Publicity for Mujahedin Raids on Soviet Territory.
The recent Soviet publicizing of insurgent raids into
Soviet Central Asia may also point toward a Soviet
decision to intensify coercive tactics. A low level of
insurgent activity into the Tajik SSR has been report-
ed by Western media for several
years, but until April Moscow media had not reported
any incidents. Then an insurgent rocket attack across
the river in early March was reported on 2 April, and
on 18 April TASS stated that two border guards had
been killed in another attack into Tajikistan.
We believe that the decision to focus public attention
on these raids was made for political purposes. The
publicity serves the purpose of justifying the Soviet
military presence in Afghanistan as necessary for a
forward defense of the USSR's frontier against al-
leged hostile intentions by the United States, which
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Soviet media repeatedly accuse of arming the muja-
hedin. It might also have been intended to offset
criticisms of the USSR for the bombings in Pakistan.
The publicity also played to Soviet concerns about
nationalism and Islamic fundamentalism in the Mus-
lim republics of Central Asia. Last November, in a
speech in Tashkent, Gorbachev called for a "merciless
struggle" against covert religious believers in the
party. Following the speech, several Uzbek party
members were purged for being practicing Muslims.
Party secretary Yakovlev's speech to the Tajik party
organization in April reflects concern about the stim-
ulus of fundamentalist Islam on local anti-Russian
nationalism.
Equivocal Actions
Many other Soviet moves this year are compatible
either with efforts to end Soviet military involvement
by probing for a political compromise or with efforts
to force the other side to accept a settlement on
Moscow's terms. Among these are continuing at-
tempts to strengthen the regime:
? The Soviets have continued to implement slow .
improvements in the Afghan military. Over the last
several months they have provided the Afghans with
more advanced artillery and infantry fighting vehi-
cles. There has been no significant improvement in
Afghan army performance, however. Rumors that
the Soviets might withdraw and intense infighting
between Parcham and Khalq factions have further
lowered military morale.
? With the growth of factionalism since the national
reconciliation initiatives, Moscow has probably
forced Najib, a Parchami, to make concessions to
the Pushtun-dominated Khalqis. This pressure has
led to speculation that the Soviets are considering
turning to the Khalqis in the interest of effective-
ness, regardless of what the regime might lose in
ethnic "representativeness."
? Moscow has intensified its effort to enhance the
international legitimacy of the regime, achieving
diplomatic recognition by Zimbabwe and Cyprus
and pressing the resumption of air links between
May.
I
Kabul and Kuwait. It also secured a visit by the
Afghan Foreign Minister to India in February,
which the Indian Foreign Minister reciprocated in
These moves are consistent with preparations by the
Soviets to take a harder military and diplomatic line
on Afghanistan, but could also be intended to put the
regime in as strong a position as possible for negotia-
tions on a coalition
The Soviets' and Afghans' refusal to set a definite
date for the resumption of the Geneva negotiations
until Pakistan has made a "reciprocal" response to
their 18-month timetable proposal is similarly ambig-
uous. Moscow could be preparing its justification-
the alleged intransigence of the other side-for aban-
doning the path of "reasonableness." However, it
could also intend to explore through other channels,
including direct contacts with Pakistan, the issue of a
new Afghan government, which the Soviets have said
will have to be agreed upon before withdrawal can be
finally; negotiated.
Recent Soviet commentary is also equivocal. It can be
read as an effort to justify to international audiences
an intensified war effort and pressure against
Pakistan:
? The Soviet media have claimed that all elements in
Pakistan want a settlement but that the United
States is prolonging the conflict to "bleed" the
Soviets. Soviet commentary has specifically charged
that the United States instigated resistance attacks
on Soviet territory and Pakistani and Iranian efforts
to block the return of refugees persuaded by Kabul's
latest reconciliation proposals.
? The Soviets have also claimed that the national
reconciliation program has been favorably received
by the Afghans, with many insurgents going over to
Kabul's side or laying down their arms and many
refugees returning home. With so many "true
patriots" now allegedly in the regime fold, Moscow
may hope that the war will produce only a reduced
international outcry and be more enthusiastically
supported at home.
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It is possible, however, that Moscow intends this
commentary primarily to persuade Islamabad to cut a
deal, both by encouraging those elements in Pakistan
that favor making concessions to end the country's
refugee problem and by reducing international sup-
port for a "fanatical" or "US-directed" resistance.
The commentary is also clearly addressed to the
domestic audience in the USSR. Domestic media
have continued to stress the necessity of Soviet in-
volvement while they.have become increasingly frank
about the hardships of the war. Such realism about
the conflict may reflect the leadership's attempt to
deal with an increasingly polarized public opinion. A
poll taken in 1986 among 1,700 Soviets traveling
abroad found that one-third supported the war, one-
third opposed it, and one-third were indifferent. The
survey showed that opposition had grown among party
members and most of the non-Russian minorities,
been expressed in such forums as public lectures and
letters to the editor.
Nonetheless, even though a significant number of
Soviets-including segments of the elite that Gorba-
chev is depending on to implement his agenda of
reform-now oppose the war, there is little evidence
to suggest that the domestic cost of the war will-by
itself-force the Gorbachev regime to reconsider its
commitment to the Najib regime. It may, however,
have a catalytic effect in changing the nature of the
policy debate, forcing a more open discussion of
possible political solutions.
In this context, Moscow's coverage of the war serves
the purpose of steeling the Soviet public for a long,
difficult struggle of attrition from which there is no
easy way out. We believe this is its prime motive. But
it also serves to prepare the ground for a political
settlement-if such is to be had-that does not
include the surrender of the insurgents.
Outlook
Moscow probably does not have a clear picture of how
it ought to proceed or where the situation may be
forcing it to go. The Gorbachev leadership almost
certainly would like to be rid of the war, but it has not
been able to find a way to end it on politically
acceptable terms. Therefore, it is still casting around
for new ideas-with an air of growing impatience.
This intensified search for a solution necessarily
forces the Kremlin to act in ways that on the surface
appear incompatible, while waiting to see what might
work out best-or what turns up. The divergence
between signs of compromise and greater coercion
could also reflect disagreement within the Soviet
leadership.
The two main new thrusts of Soviet policy since the
beginning of 1987 have been an apparent willingness
to share an undefined amount of power with insurgent
leaders in a government of national reconciliation and
the use of greater force against Pakistan. Though
neither has brought a political breakthrough, both
have served to intensify political maneuvering and
exacerbate differences within and between the major
actors-not always to Moscow's advantage. Neither
tactic has been abandoned, and pressure on Pakistan
might be just beginning to build up, with more
terrorism incidents in the Punjab supplementing spo-
radic aerial bombings along the North-West Frontier
border.
On the ground, we foresee a continuation of policies
initiated over the last two years. The Soviets will try
to improve the Afghan army and turn over to it more
of the ground combat, while emphasizing Soviet aerial
and artillery firepower support. As in 1985 and 1986,
emphasis will be put on interdicting insurgent supplies
entering Afghanistan by the use of special purpose
forces (spetsnaz) and other combat elements.
While pursuing these efforts, the Soviets are unlikely
to push the idea of compromise so far as to withdraw
while-as we judge to be true for the foreseeable
future-the Kabul regime remains unable to fend for
itself. As long as a politically acceptable compromise
remains an unattainable goal, Soviet forces seem
certain to remain in Afghanistan. Despite the discom-
fort and burden of the war there, the Soviet leadership
is not so pressed yet that it must accept defeat. Nor, in
our view, is Gorbachev compelled to run the major
political risks attendant on labeling defeat "victory"
and handing Afghanistan over to American-backed
guerrillas.
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Moscow Turns Its Attention
to Latin America
Under General Secretary Gorbachev, Soviet diploma-
cy has been increasingly visible throughout the Third
World. Senior Soviet Foreign Ministry officials have
visited their areas of responsibility and hosted their
regional counterparts in Moscow more frequently.
Within the last year, Deputy Foreign Minister Roga-
chev has made repeated trips through the Far East,
Deputy Foreign Minister Adamishin has made the
rounds in Africa, and First Deputy Minister Petrovs-
kiy and Deputy Minister Vorontsov have toured the
Middle East the
Soviet Ministry of Foreign Affairs (MFA) was reorga-
nized last spring on Gorbachev's order to stimulate
At one point last summer, MFA spo es-
man Gennadiy Gerasimov proudly unveiled a map in
Moscow, complete with varicolored little flags, that
pinpointed the farflung travels of Foreign Ministry
staffers.
Latin America can boast of many such flags. Within
the last year, Moscow has appeared as diplomatically
active in this region as in the Middle East-an area
that clearly overshadows it in strategic importance.
under Gorbachev a
new policy is emerging in the Foreign Ministry that
places greater emphasis on political ties to Latin
American countries. The General Secretary's pro-
posed visit to the region-in late 1987 or early 1988-
confirms this trend.
It Wasn't Always This Way
In January MFA Latin America expert Ivan Laptev
told British counterparts that past Soviet experience
in the region had been "more negative than positive."
The overriding consideration in keeping the Soviet
profile low was Moscow's perception that the United
States had special prerogatives in the area and would
probably respond strongly to any perceived encroach-
ments by the USSR. The majority of Latin American
governments, in turn, were standoffish about contact
with Moscow-providing few opportunities for the
Soviets to expand their influence in the region.
Thus, from the 1960s until the beginning of this
decade, Moscow gave only sporadic attention to Latin
America. The Kremlin concentrated on diplomatic
and commercial dealings-including some military
hardware sales-and only selectively supported Com-
munist and leftist opposition groups. During the
1970s, for instance, Moscow provided concessionary
terms to the leftist military government of Peru for
the purchase of Soviet tanks, airplanes, and other
military items, but it declined to build on this base by
providing much economic assistance. Moscow also
failed to provide economic aid to the troubled regime
of Salvador Allende in Chile. At the same time,
because of Cuba's internal economic problems and
highly publicized failures such as Che Guevara's
attempt to bring revolution to Bolivia, the Soviets
actively discouraged Castro's efforts to export revolu-
tion to the Latin American mainland.
Only in the early 1980s did Moscow achieve a limited
expansion of influence through increased trade ar-
rangements. In Brazil and Uruguay, Moscow bought
raw materials such as coffee and wool; and when the
United States refused to sell wheat to the Soviet
Union, Argentina became an alternative supplier.
Official Soviet trade statistics indicate that Latin
American earnings from trade with Moscow reached
a high of approximately $4.2 billion around 1981.
Overall state-to-state access remained limited, howev-
er, until the mid-1980s, when Argentina and Brazil
shed their military leadership and became civilian-
ruled democracies. At the same time, the pressure of
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mounting international debts stimulated Latin Ameri-
can interest in further expanding trade-and it was
term. Profitability in the Soviet-Latin American eco-
nomic relationship, for example, is some years off.
hoped, profit-with the USSR.
Moscow found additional encouragement in the San-
dinista victory in Nicaragua in 1979, which caused it
to rethink the efficacy of leftist revolution in Latin
America and to identify targets of opportunity else-
where in the hemisphere. Since then, the Soviets have
selectively expanded their limited assistance to opposi-
tion leftists to include paramilitary training, increased
funding, and massive propaganda support. For exam-
ple, while Moscow's assistance to El Salvador and
Guatemala has declined since 1981-82, its support to
the Communist Party of Chile has grown slowly but
steadily, indicating Moscow judges violent revolution
is a viable opportunity there. Finally, the survival of
the Sandinista regime-despite US hostility-had, by
the mid-1980s, given Moscow a growing sense that it
could expand its influence in Latin America through
overt trade and diplomacy and selective covert subver-
sion without serious risk.
Under Gorbachev: What's New?
Although the Latin Americans are now more recep-
tive to Soviet overtures than in the past, we believe
that the push for increased ties still originates with
Moscow. Soviet MFA Latin American expert Laptev
claimed last January that Latin America's wealth,
dynamism, and increasing independence from the
United States called for a new Soviet effort to
heighten Moscow's profile in the region.
The Soviets' primary objectives in Latin America
have not altered discernibly since Gorbachev came to
power in March 1985. Moscow remains committed to
Cuba, to the survival of the Sandinista revolution, to
the overthrow of President Pinochet in Chile, and to
the expansion of profitable trade relations.
Under Gorbachev, the Kremlin has significantly in-
creased its efforts to strengthen official state-to-state
ties, especially with the region's most important eco-
nomic and political powers. Moscow also is attempt-
ing to sponsor the expansion or renewal of relations
with states such as Guatemala, where ties were
broken in the 1950s. Yet, the Soviets are aware that
some of these goals are not realizable in the short
Political Payoffs. For now, Gorbachev apparently
contemplates significant political payoffs-both re-
gional and international-from expanding contact
with Latin America. He is seeking to:
? Increase anti-Americanism and neutralize US polit-
ical clout in the area.
? Reinforce the legitimacy of the USSR as an actor in
Western Hemispheric affairs-thus further assault-
ing the Monroe Doctrine and gaining greater politi-
cal access within Latin America.
? Help consolidate the Sandinista regime by playing
on regional concerns about US military support for
the Nicaraguan insurgents and portraying Moscow
as supportive of regional peace initiatives.
? Enlist regional support for Soviet positions on arms
control issues such as SDI and project this support
into international forums such as the UN or the
Nonaligned Movement (NAM).
The Soviets will probably have some success with
these objectives. Although Latin American leaders to
a large extent seek to avoid involvement in East-West
tensions and are careful in discussing issues such as
Central America that would pose a direct risk to their
relations with Washington, Moscow realizes that they
also have internal political agendas and must work
with nationalistic and leftist elements in their own
electorates. The fear that the United States might
take military action against the Sandinistas, for ex-
ample, is widely held in Latin America; several states,
such as Peru, Uruguay, and Argentina, have been
vocal in denouncing aspects of US policy toward
Nicaragua. Although these views are hardly identical
to Moscow's, the Soviets have become skillful at
creating the appearance that some Latin American
nations are aligned with Moscow.
Economic Benefits. Although Moscow is more inter-
ested in immediate political gain in its competition
with the United States, it hopes that its initiatives will
also foster long-term trade expansion. The Latin
Americans, however, will probably continue to find
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kW" c.
standard Soviet trade terms-countertrade or barter
and insistence on greater bilateral balance-unattrac-
tive and the Soviet trade bureaucracy unresponsive.
For example, although the Soviets signed a long-term
grain agreement with Argentina in January 1986,
they angered Buenos Aires by waiting until early this
year to begin fulfilling their commitments. In Febru-
ary Deputy Foreign Minister Komplektov disappoint-
ed Uruguay by refusing to increase Soviet purchases
of its goods.
Moscow also continues to offer to sell military hard-
ware for both economic benefits and the increased
access that such deals would create. The Soviets have
reportedly made several offers to supply combat air-
craft to the Argentines at relatively low cost. They
have invited Argentine officers to Peru to test Soviet
equipment, and in late 1986 they hosted a group of
students and staff from Argentina's Higher Military
Air College in the USSR. Early this year Moscow
offered to provide the Uruguayan Air Force with an
aerial demonstration for its Air Force Day ceremonies
in March, but Montevideo declined the offer. We
believe that most Latin American countries are leery
of military hardware deals with the Soviet Union.
Moscow, however, will probably continue its efforts to
entice them by initially offering items such as helicop-
ters or transport aircraft for civil and commercial use
by regional airlines.
Support for Revolution. Moscow selectively supports
revolutionary movements in Latin America and may
believe that this goal too will ultimately be well served
by increased state-to-state ties in the region. For the
time being, it has apparently given priority to the
survival of the Sandinista regime over the aspirations
of other revolutionary groups in Central America:
Soviet economic aid to Nicaragua reached an all-time
high of $325 million in 1986, while assistance to other
Central American revolutionaries has declined. F_
In South America, the Kremlin has thrown its weight
behind the overthrow of Chile's President Pinochet,
by violence if necessary. Moscow may believe that
regional dislike of Pinochet is so great that there will
be few repercussions from its active support of leftist
revolution in Chile. Although the Soviets appear to be
letting Havana take the lead in arming and training
Chilean revolutionaries, they have openly backed the
Chilean Communist Party's violent tactics since 1980
and provide it with substantial annual funding, as well
as ideological advice.
Public Diplomacy: A New Veneer?
In its efforts to increase contacts with Latin America,
Moscow has sponsored an unprecedented series of
bilateral meetings with regional leaders:
? Argentine President Alfonsin visited Moscow in late
1986'and Presidents Sanguinetti of Uruguay and de
la Madrid of Mexico are on the schedule this year.
? In the last year and a half, the Foreign Ministers of
Mexico, Uruguay, Brazil, and Argentina have visit-
ed the USSR.
? Soviet Deputy Foreign Minister Komplektov has
made two swings through the region, visiting Peru,
Venezuela, and Cuba last summer and returning in
February 1987 to visit Brazil, Uruguay, and 25X1
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? Foreign Minister Shevardnadze visited Mexico last
Soviet delegations to Latin America have increased
markedly in number and prestige compared with 10
years ago. Until 1984 the highest ranking Soviet
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av'TCl
visitors were the Secretary General of the MFA, who
visited Peru, Columbia, Argentina, Brazil, and Pana-
ma in the course of several trips, and the Minister of
Culture, who visited Mexico in 1982. Mexican Presi-
dent Lopez-Portillo visited Moscow in 1978, but his
visit came at Mexican initiative and was neither
preceded nor followed by any other significant visits.
Between 1976 and 1983 the average number of
economic or political exchanges per year between
Moscow and the Latin American countries (excluding
Cuba and Nicaragua) was 13. From 1984 through
1986, this average jumped to 26 per year. By 1986
Argentina, Brazil, Peru, and Mexico were the most
frequent participants in exchanges with the USSR.
the itinerary that it desires-including a fall summit
with President Reagan-Gorbachev would proceed
from the United States to Mexico and then swing
through Brazil, Argentina, Uruguay, and probably
Peru. The General Secretary's plane almost certainly
would make a refueling stop in Cuba, where we would
expect him to have talks with Fidel Castro. Moscow,
however, could use the technical excuse to play down
the significance of his stay in Havana. Unless Gorba-
chev feels pushed to make a dramatic gesture of
support for Nicaragua, we do not believe that he will
stop there;
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Along with the expansion of its diplomatic initiatives
in Latin America, Moscow is stepping up efforts to
foster a positive image of the USSR. Soviet personnel
posted to the region are more visible, actively courting
Within the last year Novosti has expanded its offices
in Brazil and Mexico. The US Embassy in Caracas
reported that the Soviet Ambassador there has used
full-page advertisements to get his message across
Argentine press officials believe that the Soviet
Embassy there is sponsoring a media campaign to
produce a positive assessment of Soviet domestic and
foreign policies. In Mexico, Argentina, Uruguay, and
Venezuela, Soviet diplomats have begun to hold press
conferences on a regular basis. As a prelude to a
Gorbachev visit, Moscow has been sponsoring work-
ing tours of the USSR for selected journalists from
The Gorbachev Visit
A Gorbachev visit to the area-where the General
Secretary would trade the prestige of his presence for
possible concessions from the Latins-would enhance
these new initiatives dramatically. If Moscow can get
Not everything is going Moscow's way, however, and
some states-notably Argentina and Brazil-have
important agendas of their own during the latter
months of 1987. Some states are reluctant to schedule
Gorbachev's trip during Moscow's preferred time
frame, and the trip could easily be delayed until 1988.
If scheduling problems continue, there is an outside
chance that Gorbachev may contemplate two trips:
one this fall to the United States and Mexico and
another, perhaps in early 1988, through South
America.
Outlook
The Gorbachev visit probably will take place, but the
results will be mixed. In some-perhaps most-stops,
Gorbachev is likely to come away with only cultural
or scientific agreements, increased embassy slots, or
low-volume economic deals. Because of internal pres-
sure from varied interest groups and concern for
Washington's reaction, we expect the Latin American
governments will be cautious in discussing issues such
as Central America. The final communiques may only
treat areas of generalized political agreement-such
as consensus on the need for regional solutions to
problems in Central America or on the disarmament
initiatives of the Delhi Six or the South Atlantic Zone
of Peace. Moscow has long believed, however, that
small advances such as these lay the groundwork for
greater influence in the future.
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Gorbachev might make a dramatic sign of support for
the Sandinistas and stop in Nicaragua, although such
a decision would probably be carefully weighed be-
cause of the potential for opposition from the United
States and other regional actors. We believe he would
consider this option if the United States were to
rebuff Soviet overtures for a summit or if he were
displeased with the progress of US-Soviet relations.
He might attempt to portray such a visit as part of
Moscow's support for regional peace initiatives such
as Contadora, especially if the recent momentum
stimulated by. developments such as Costa Rica's
peace proposal moves the negotiations toward an
agreement. Moscow would probably calculate, howev-
er, that such a visit would increase US Congressional
support for the Nicaraguan insurgents, as occurred
when Daniel Ortega made his ill-timed visit to Mos-
cow in the spring of 1985.
In the near term, Moscow will undoubtedly use
whatever influence it can muster to encourage Latin
American opposition to US policies and to erode US
political influence in the region. In particular, by
portraying themselves as supporting a regional solu-
tion to the problems in Central America, the Soviets
Soviet influence on the American mainland.
may be increasingly effective in manipulating local
opposition to US intervention in Nicaragua, possibly
limiting US policy options there and institutionalizing
democracies, especially Brazil and Argentina.
The reintegration of Cuba into the diplomatic main-
stream of hemispheric affairs will probably also accel-
erate under Moscow's expanding umbrella of con-
tacts. Havana has begun a series of moves that
parallel Moscow's efforts to reduce US political clout
in the area, such as President Castro's attempts to
rally regional solidarity on the issue of Latin Ameri-
can debt. Moreover, there are indications that Cas- 25X1
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Moscow's Relationship
With Riyadh: Progress
at a Snail's Pace
The visit of Saudi Petroleum Minister Hisham Nazir
to Moscow in January, like previous visits by Saudi
officials in 1982 and 1985, raised questions about
whether it portended significant improvement in ties
between the two countries. Although Moscow gave
the visit much attention and Soviet officials expressed
optimism about its impact on Soviet-Saudi relations,
the Saudis played down its significance for bilateral
relations. This is typical of the differing approaches of
the two countries.
Since the late 1970s, Moscow has been attempting to
reestablish ties to Saudi Arabia after withdrawing its
ambassador nearly 50 years ago. Following the 1973
OPEC oil embargo and the rise in oil prices, Moscow
viewed Riyadh as rich and powerful enough to be one
of the top players in the Middle East. Later, as oil
prices fell and OPEC grew weaker, the Soviets report-
edly began to view Saudi power as leveling off and
possibly waning.
Nevertheless,. Moscow remains keen to reestablish
ties:
? The Soviets see Saudi Arabia as a key US ally that
often supports US policies hostile to their interests,
such as aid to the Afghan resistance. A Soviet
mission in Riyadh would provide opportunities to
influence Riyadh toward a less pro-US orientation.
? As a major oil producer that relies on oil exports for
much of its hard currency earnings, Moscow would
like better access to information concerning OPEC
intentions and factors that influence the world
market price of oil.
? Because of Saudi Arabia's influential role in the
Middle East and in the Islamic world more general-
ly, the Soviets view closer relations with the Saudis
as a key to further improvement in ties to other Gulf
states and as a way to enhance their prestige in the
region and internationally.
Moscow's courtship of the Saudis has taken many
forms. The Soviets have emphasized issues of common
concern, pursued ambassadorial-level contacts in
third countries, urged third parties to facilitate better
ties, and used occasional visits by Saudi officials to
Moscow to press their case.
Common Ground
Moscow has tried to play up common positions on
regional disputes with heavy emphasis on a mutual
interest in supporting Iraq. In mid-1983 the Soviets
began to lift Saudi crude oil as war relief aid for Iraq.
The arrangement continued into 1986, but Moscow
and Riyadh have not yet agreed on a contract to
continue the program this year. Moscow apparently
has pressed Riyadh unsuccessfully to service Soviet
ships carrying military equipment for Iraq and to
permit Soviet ships to unload equipment at Saudi
ports for transport overland to Iraq.
The Soviets also claim commonality of interest in
supporting the Palestinian cause and calling for Israe-
li withdrawal from territories occupied in 1967. Both
countries support the Arafat faction of the PLO, and
Riyadh has been receptive to Moscow's call for an
international conference on the Middle East and to
Soviet participation in the peace process.
Moscow also tries to claim affinity with the Saudis
and the Islamic world in general by virtue of its large
Muslim population. It has paid close attention to
overcoming its image as an atheistic state by increas-
ing official contacts with Muslim organizations and
by attempting to present an image of religious free-
dom for Muslims at home and of friendship toward
Muslim countries abroad. For example, it has pressed
for ties to the Organization of the Islamic Conference
(OIC) headquartered in Jeddah, Saudi Arabia, and
succeeded after repeated invitations in arranging for a
visit by OIC Secretary General Pirzada to Moscow in
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November 1986-the first such trip since the organi-
zation was founded in 1969. During the visit, Soviet
Foreign Minister Shevardnadze pressed Pirzada to
side with the USSR on East-West issues, tried to
convince him of Soviet good intentions regarding
Afghanistan, and attempted to solicit his help in
promoting relations with the Saudis. The Soviets also
pushed unsuccessfully for formal links to the OIC in
the hope of obtaining an invitation to the Islamic
The Soviets have also tried to identify possible ave-
nues for gaining entry to the Saudi market for arms.
summit in Kuwait in January 1987.
Limited Contacts
Since the Soviets undertook to improve relations in
the late 1970s, there have been few direct contacts
between the two countries; high-level contacts have
generally been limited to meetings between Soviet and
Saudi ambassadors in third countries. In December
1982, the Soviets and Saudis agreed to use their
respective ambassadors in London or Paris as points
of contact on matters requiring consultations. In
January 1987 the Soviet Ambassador to Kuwait
publicly confirmed reports that Soviet and Saudi
ambassadors had recently met in London and that the
two countries also maintained contacts in other world
capitals.
The Soviets have also used third parties in their effort
to improve contacts with the Saudis. Kuwait, until
recently the only Gulf state having relations with
Moscow, appears to play an important role in facili-
tating Soviet-Saudi communication. Kuwait's Mos-
cow Embassy has assisted in arrangements for Saudi
visitors in Moscow, and the Kuwaiti Ambassador
arranges and attends Saudi meetings with Soviet
officials, hosts receptions for the visitors, and provides
official support and media coverage. Kuwait,
has served both as a meeting
place and as a mediator and promoter of Soviet-Saudi
Visits to Moscow
Only three Saudi officials have visited Moscow since
World War II, and they did not travel in their official
government capacity. The Soviets, however, gave the
visits high-level attention, and each visit raised specu-
lation overseas that the Soviet hosts might effectively
use such contacts to improve bilateral relations.
In December 1982 Saudi Foreign Minister Prince
Saud al-Faysal visited Moscow and Beijing with a
seven-member Arab League delegation as part of an
effort to explain the Arab peace plan adopted at the
Arab summit in Fez, Morocco, to UN Security
Council members. After General Secretary Andropov
met the delegation, Foreign Minister Gromyko met
privately with Prince Saud for discussions on Af-
ghanistan and other issues. It was during this visit
that the two sides agreed to use their ambassadors in
London or Paris for future consultations
Embassy reporting.
In a public statement shortly after Sa'ud's visit,
Crown Prince Abdallah, the King's half-brother, de-
clared his support for balanced relations with both
superpowers, arousing speculation that the Soviets
had successfully pressed their case for improved ties.
The Crown Prince, however, later told intimates that
it would be inconsistent to welcome Soviet diplomats
to Riyadh as long as the Soviets oppress Muslims in
Afghanistan and South Yemen, according to US
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A second visit took place in August 1985, when one of
King Fahd's sons, Prince Faysal, headed an
18-member sports delegation to Moscow in his capaci-
ty as chairman of the Saudi youth organization. The
Kuwaiti news agency reported that Faysal spent two
hours in conversation with Deputy Foreign Minister
Georgiy Kornienko and the head of the Foreign
Ministry's Middle East Department, Vladimir
Polyakov-a meeting arranged and attended by the
Kuwaiti Ambassador in Moscow. The Prince an-
nounced that there would be further cooperation and
commercial exchange between the two countries but
stated that economic relations are separate from
diplomatic ones.
Following the visit, King Fahd's private secretary
scotched rumors that Faysal engaged in policy discus-
sions and indicated that the King was irritated that
the Soviets had exploited the visit for political pur-
poses, according to US Embassy reporting. Polyakov
later reportedly described the visit to a foreign diplo-
mat as solely a youth exchange and not a springboard
for diplomatic relations. Denying that there was any
comparison with US "Ping-Pong diplomacy" in Chi-
na, Polyakov stated that the Soviets were ready to set
up a diplomatic post in Riyadh whenever the Saudis
agreed and that they would wait for the next Saudi
move.
Saudi Petroleum Minister Nazir visited Moscow in
January 1987 as an OPEC representative seeking
support from non-OPEC producers to stabilize the oil
market. Riyadh emphasized the OPEC purpose and
multilateral nature of the tour and noted that Nazir
discussed the international oil market in his meeting
with Foreign Minister Shevardnadze. Although in the
past Moscow has avoided direct cooperation with
OPEC, the Soviets used the visit to publicly support
OPEC and Saudi initiatives by declaring their mutual
interests as petroleum exporters in a stable oil market
and by announcing that they would reduce oil exports
by 7 percent in support of OPEC efforts. Before the
visit was announced Moscow had unilaterally set an
$18-per-barrel price on Soviet oil exports-the price
target pushed by the Saudis at OPEC meetings in
1986.
Although Soviet media gave heavy attention to Na-
zir's visit and noted that "the positions of the two
countries on the principal urgent problems are the
same," private accounts of the meetings indicate that
the Soviets did not make as much progress as they
may have hoped. A Saudi Foreign Ministry official
told a US Embassy officer in Riyadh that Nazir
turned down a Soviet request to open a mission of
Soviet Muslims in Mecca to support Soviet pilgrims
on the annual pilgrimage known as the Hajj on the
grounds that the Soviets do not send enough pilgrims
to require a mission. (A counselor in the Saudi
Foreign Ministry's Directorate General for Islamic
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number of pilgrims at 15 to 18 annually.) The Saudis
claim that Nazir's visit was exclusively on OPEC
business and, as proof that it did not signify improved
bilateral relations, point out that the week before the
visit King Fahd refused visa requests for several
Soviet academics to visit Saudi Arabia. The deputy
director of the Soviet Foreign Ministry's Near East
Department told a US Embassy officer after the visit
that he saw little likelihood of establishing diplomatic
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During the visit the Soviets made a special effort to
convince the Saudis of their intention to withdraw
from Afghanistan, demonstrating their sensitivity to 25X1
the importance of this issue in Soviet-Saudi relations.
Saudi Foreign Minister Saud and King Fahd, howev-
er, have emphasized that Nazir was sent solely on
OPEC business and was not empowered to discuss
political matters.
Assessing Soviet Efforts
From the Soviets' perspective, they have made moder-
ate progress in their relationship with the Saudis since
1979. In spite of Saudi refusal to permit a Soviet
presence in their country, Moscow has succeeded in
establishing a limited dialogue with Riyadh in specific
areas of mutual interest, using its embassies in third
countries and infrequent Saudi visitors to Moscow as
channels of communication. The Soviets, however,
have been unable to convince the Saudis of the
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advantages of reestablishing official relations. Indeed,
the mutual willingness of the two sides to work
through third parties and unofficial contacts may
weaken the Soviet case for direct ties.
It is difficult to determine how much progress the
Soviets have made in efforts to revamp their image, to
distance themselves from identification with radical
or subversive groups, and to demonstrate friendliness
toward Islamic and other religious groups. Certainly,
Moscow has not yet overcome the unfavorable impact
of its involvement in Afghanistan. On the other hand,
it may continue to translate its support for Iraq into
additional, although still limited, cooperation with the
Saudis.
Although the Soviets claim legitimate interests in the
Gulf, they have not dispelled the impression that they
have little to offer to countries in the region. Their
recent promise to OPEC to cut Soviet oil exports to
the West, if implemented, would have political impor-
tance as a sign of cooperation with OPEC, but the
amount of oil involved is too small to have an
economic impact on the oil market. Furthermore,
there have been few opportunities for Moscow to
promote economic and military cooperation with Ri-
yadh. Soviet-Saudi trade is insignificant, and there
are few areas for profitable expansion. Along with its
aversion to a close relationship with Moscow,
Riyadh's preference for high-technology Western mil-
itary equipment has prevented the Soviets from ex-
ploiting Saudi security concerns, and Riyadh remains
dependent on Western security assistance.
In their attempt to present themselves as desirable
diplomatic partners for the Saudis, the Soviets seem
to come across too loudly and forcefully for Arab
tastes. Their frequent public calls for closer relations
appear as indiscreet pressure tactics, and their public
statements concerning contacts with the Saudis and
relations with other conservative Gulf states are often
propagandistic, if not bombastic, in tone. Soviet
claims of good relations with Kuwait and other Gulf
states and references to their success in 1985 in
establishing diplomatic relations with Oman and the
United Arab Emirates have little effect on Saudi
policy toward Moscow. Clearly, Moscow will have to
offer more than rhetoric and proclaimed intentions to
obtain an official presence in Riyadh
Outlook
Although there were hints in the late 1970s-in the
wake of the Camp David accords-that Riyadh was
considering reestablishing relations with Moscow, the
chances for a dramatic breakthrough in the immedi-
ate future are small. Moscow remains an unpalatable
diplomatic partner for a variety of reasons:
? The Saudis distrust Soviet intentions and believe the
Soviets would use an expanded diplomatic presence
in the area as a base for subversion against them
and other Gulf states and as a means to increase
their military presence in the region.
? They see the Soviet military presence in Ethiopia
and South Yemen as a threat to their own security.
? Riyadh's ideological aversion to Communism re-
mains strong, and it has expressed strong opposition
to the Soviet policy of gaining footholds in Third
World countries through military assistance
programs.
? Saudi Arabia, as a leading Muslim nation, has still
not accepted the Soviet occupation of Afghanistan
and continues to insist that Moscow's presence there
is an impediment to expanded ties.
? The Saudis are concerned over the lack of religious
freedom in the USSR and what they see as Mos-
cow's poor treatment of its large Muslim minority
(estimated at over 45 million people or more than 15
percent of the total Soviet population).
? King Fahd appears unwilling to provoke conserva-
tive elements within Saudi Arabia by reestablishing
ties to the USSR without having clear gains to show
for it.
? The Saudis oppose recent Soviet moves to improve
relations with Israel and have expressed concern
that increased Jewish emigration from the Soviet
Union will strengthen Israel.
? Riyadh is concerned that a rapprochement with
Moscow would cause increased strains in US-Saudi
relations.
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The Saudis, nevertheless, appear less reluctant than in
the past to explore expanded ties to the Soviets. They
may hope that improved ties to and greater coopera-
tion with Moscow on limited matters of Riyadh's
choosing will promote good will and temper Soviet
support for activities inimical to Saudi interests.
Further improvement, however, is likely to be a slow
and gradual process, with Riyadh moving at its own
pace. Developments that might reduce the obstacles to
improved relations and increase Saudi receptiveness
to calls for normalization include progress on Soviet
withdrawal from Afghanistan, greater religious free-
dom for Muslims in the USSR, moderation in Soviet
policies and actions toward the Middle East, and a
perception that the Soviets are gaining a position of
greater influence there through improved relations
with either Iran or Israel.
Moscow probably will try to exploit Riyadh's desire to
lessen its dependence on the United States, project a
more nonaligned foreign policy, and make the United
States more responsive to Saudi concerns. Although
the Saudi security relationship with the United States
remains strong, improved Saudi-Soviet ties would give
Riyadh an alternative to the conspicuous US presence
and limit radical Arab criticism of the Fahd regime
for being too pro-Western. The Saudis are aware of
the US interest over recent-and highly visible-
Soviet overtures toward them and probably believe
these developments will make the United States more
responsive to their concerns.
Even if relations were reestablished, however, the
Saudis would remain cautious and fundamentally
opposed to Soviet efforts to expand their influence on
the Arabian Peninsula. The Soviet diplomatic pres-
ence in Riyadh would be small, economic ties and
other contacts would probably remain limited, and the
Saudis would be unlikely to turn to Moscow for major
weapon systems even if the United States were unable
to provide them.
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The Academy of Sciences
in Gorbachev's
Modernization Campaign
General Secretary Mikhail Gorbachev is calling on
Soviet science to help modernize the nation's industri-
al base and meet the technological challenge of the
West. Gorbachev has frequently declared that science
is the key to sustained technical progress, and he is
looking particularly to the Academy of Sciences-the
USSR's preeminent authority in science-as the ulti-
mate source of technological advance and to support
his modernization campaign.
Science to the Rescue
In large part the Soviets are turning to the Academy
to make up for serious science and technology (S&T)
deficiencies in the branch ministries. On the one hand,
the Academy is being called upon to do more basic
research in support of fundamentally new technol-
ogies because the industrial ministries have failed to
provide a hospitable environment for such research.
On the other hand, the Academy is being asked to do
more applied work, especially in new, interbranch
technologies whose development has been resisted or
retarded by the branch ministries. Confronted with a
ministerial research and development (R&D) sector
that is oriented toward propping up faltering, older
smokestack industries rather than aiding the develop-
ment of high-tech sectors, the leadership is looking to
the Academy for assistance in pioneering newer, more
innovative technologies critical for industrial modern-
ization in both the defense and civil sectors.
Under Gorbachev the Soviet regime is coming almost
full circle in its attitude toward the Academy of
Sciences. Current efforts to significantly expand
Academy involvement in applied R&D represent a
reversal of the policy pursued by Khrushchev in the
early 1960s that sought to restrict the Academy's role
to basic research. At the same time, Gorbachev's call
on the Academy to support his modernization pro-
gram is strikingly similar to Stalin's drive to enlist the
Academy in the industrialization campaign more than
a half century ago. Both then and now, official
concern about enhancing military power and the
USSR's ability to compete with the West figures
prominently among the considerations underlying
The Academy Under Gorbachev
While this effort to reorient the Academy more
toward practical applications and away from pure
research began in the 1970s, Gorbachev has given it
new impetus. On one level, this general thrust is more
evident in recent changes in the Academy's structure
and leadership:
Technology, and Automation Department in
1983-the first new department in the Academy
since 1968-was part of a major effort by the
political leadership to bring the Academy back into
the computer technology field and to rebuild its lost
capabilities. A key task of this department is to
catch up with the West in a critical technology that
is seen by Soviets to be impeding not only modern-
ization of the economy but development of science
as well. Academy Vice President Yevgeniy Velik-
hov, who heads this department, is Gorbachev's
unofficial science adviser,
? In March 1986 the Mechanics and Control Process-
es Department was reorganized and renamed the
Machine Building Problems, Mechanics, and Con-
trol Processes Department. This department-since
1982 the Academy's largest and traditionally the
one with the closest ties to the defense industry-is
being called upon to provide support to the pivotal
machine-building sector. Academy Vice President
Konstantin Frolov is playing a key role here. Like
Velikhov, Frolov is the academician secretary of this
department and its driving force. He is also the
director of the Blaganravov Machine Sciences Insti-
tute, whose interests have long focused on machin-
ery, automated manufacturing technology, robotics,
composite materials, and computer-assisted design
and manufacturing systems.
modernization strategy.
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? The Economics Department is also undergoing ma-
jor changes. Abel Aganbegyan, a close adviser to
Gorbachev, was recently installed as academician
secretary and is moving vigorously to restructure the
department and its work. A new Institute of Eco-
nomics and Forecasting of S&T Progress has been
created to assist the Academy in its long-term
planning and technology assessment efforts. Several
new institute directors-most of whom are in their
forties or early fifties-have been appointed during
the past year and compose the biggest injection of
new blood into the management of economic sci-
ences in many years.
Most important, Guriy Marchuk, the chairman of the
State Committee for Science and Technology, re-
placed the 83-year-old Anatoliy Aleksandrov in Octo-
Links To the Economy
To break down the barriers separating the Academy
from production, a number of organizational linkages
are being established or strengthened:
? To enhance its ability to coordinate key directions of
basic research outside the Academy, selected
branch institutes are being made dually subordinate
to both their parent ministry and the Academy. In
1981 the Academy's charter was amended to enable
its departments to exercise tighter scientific supervi-
son over such institutes. By early 1986, 29 branch
institutes had been brought under the "scientific
methods supervision" of the Academy. Vice Presi-
dent Frolov is actively promoting this form of
Academy-industrial linkage in the machine-building
area.
ber as President of the Academy of Sciences.
Aleksandrov, who openly and
strongly defended the priority of fundamental re-
search, may have resisted Gorbachev's drive to build
closer ties between the Academy and industry, a
campaign led by Marchuk.
Another major thrust of organizational efforts is to
strengthen the Academy's traditionally weak technol-
ogy base, both to enhance Academy capabilities to
conduct applied R&D and to raise industry's interest
The leadership is also committing substantially in-
creased resources to the Academy during the 1986-90
plan period. Capital investments aimed at strengthen-
ing the Academy's own experimental production base
and instrument-making shop will grow by 150 per-
cent, according to the Soviet press. The volume of
Academy production of scientific instruments is slated
to more than double by 1990, and to quadruple by
1995. To help accomplish this task, several design
bureaus and plants with more than 200,000 square
meters of floorspace will be added to the Academy
? Special laboratories are being set up at Academy
institutes to focus on developing specific applica-
tions for industry. These so-called temporary S&T
laboratories are created for a period not to exceed
three years. Funded entirely by various ministries,
the labs permit Academy scientific workers to use
the equipment, instruments, and facilities of the
contracting ministries, as well as to collaborate
directly with industrial R&D and production per-
sonnel who, as one academician puts it, "know the
problems and reality." Created in 1981 on an
experimental basis at eight Academy institutes,
there are now reportedly 40 such laboratories in
operation within the Academy.
? Large S&T complexes are being established to
speed development of critical industrial technologies
and their introduction into the economy. These so-
called interbranch complexes (MNTKs) include re-
search, development, and manufacturing facilities
from both the Academy of Sciences and industrial
ministries, with nearly one-half led by Academy
institutes. They focus on areas where breakthroughs
would benefit the entire economy and report direct-
ly to the Council of Ministers. At the January
plenum, Gorbachev emphasized that the party is
pinning high hopes on the MNTKs to hasten S&T
advance.
during 1986-90.
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The Soviets also are adopting measures aimed at
creating a more favorable climate in the Academy for
applied research and technology development. These
measures involve greater rewards for innovation and
sanctions to weed out unproductive research. Howev-
er, a better incentives policy is the least developed
part of Gorbachev's modernization program. While
ongoing measures may lead to improved performance
to some extent, they are also causing anxiety and
confusion among Academy workers.
The newly promoted leaders of the Academy-
Marchuk, Frolov, and Mesyats-reflect the hard-
driving and innovative management style called for by
Gorbachev. All are energetic individuals with strong
applied science backgrounds and avid supporters of
accelerated modernization of science and industry.
Outlook for the Academy
We expect that the Academy will undergo significant
changes in structure, management, and makeup over
the next few years. President Marchuk has already
laid out the broad outlines of a bold program for
"restructuring" the Academy's work, and Gorbachev
has publicly pledged to support him in this effort.
Marchuk has charged that conservatism has so pene-
trated this 250-year-old institution that "now we are
becoming slaves of the structures and traditions that
have built up over the decades."
Such a revitalization is essential if the Academy is to
meet the party's high expectations and act as the
spark plug in Gorbachev's modernization program. To
effectively accomplish its tasks, the Academy must be
substantially renewed, "fired up," and transformed
from a geriatric society dominated by science of the
past into an energetic and innovative force oriented to
21st-century S&T.
Renovation of this unique Soviet institution, however,
will be most difficult and protracted. The Academy
elects its own members by secret vote, and there are
no viable mechanisms for easily purging or rapidly
renewing the Academy. In addition, Soviet science is
heavily dominated by personality. While the regime
may be anxious to curb the power of aging scientists
and conservative research directors, the role of power-
ful scientific leaders has been an important one in
S&T advancement. Restricting the power and position
of individual scientists could well impede the initiative
and creativity that Gorbachev is calling for.
The Academy is likely to get a new or amended
charter this year that will facilitate the changes the
regime would like to introduce. In general, a restruc-
turing would probably focus on:
? Rejuvenation. Currently with one-third of its mem-
bers (full and corresponding) over 75 years old and
less than 5 percent under 50, this task has become
urgent. Any changes in membership policy and
procedure will require amendments to the Acade-
my's statutes. Specific measures that have recently
been proposed to deal with the issue include the
following:
-Creating an additional membership slot auto-
matically when an Academy member reaches
age 75.
-Imposing a 65-year age limit on the election of
new members, allowing a fixed number of mem-
bers to be younger than 65.
-Restoring the 55-year age limit for election of
corresponding members to the Academy that was
removed from the statutes in the 1960s.
At its March 1987 general meeting, the Academy
introduced mandatory retirement at age 65 for all
scientific leadership positions. Academicians and
corresponding members will resign their leadership
positions between the ages of 65 and 70.
? Decentralization and "democratization. " Marchuk
will probably continue to press for a decentraliza-
tion of power within the Academy, with a devolution
of decisionmaking from the presidium to the Acade-
my's substantive and regional departments. The
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departments will evidently have more say in defin-
ing work and controlling resources, cadres, and
international scientific contacts. A new post of
"deputy academician secretary for organizational
work" is being created in each department to direct
the staff. We are also likely to see an extension of
Gorbachev's glasnost campaign to the Academy,
with greater emphasis on criticism and rank-and-
file participation in Academy affairs. "Democrati-
zation" measures will also aim at improving cre-
ativity and innovation within institutes as well as
overall morale among Academy workers.
? Industrialization of the Academy. We expect to see
more applied scientists and engineers elected to the
Academy, particularly in targeted areas of S&T
where the Academy's capabilities have been more
limited but also where it is assuming an increasingly
pivotal role in speeding S&T advance. We expect
the next elections of the Academy to reflect this
changing composition and the commitment of the
political and Academy leadership to the moderniza-
tion program.
Any attempts at radical and rapid change will en-
counter formidable resistance and institutional iner-
tia, and the regime will probably move cautiously to
avoid alienating the very institution on which it is
pinning such high hopes. More broadly, the Academy
will face the difficult task of finding the right balance
between its various responsibilities and roles, trying to
meet the party's demands for more applied research
and support for the modernization program while
preserving its traditional and still primary mission of
serving as the nation's foremost performer of funda-
mental research.
Prospects for Science and Technology
The deepening involvement of the Academy in Gorba-
chev's drive for industrial modernization should lead
to a modernization of Soviet science. Indeed, many
Academy scientists are likely to use and manipulate
the campaign to benefit science as much as possible,
while paying lipservice to contributing to industrial
modernization goals. They regard the buildup and
modernization of their own technology base to be as
important as the rejuvenation of industry's technology
base, if not more so.
The Academy's S&T capabilities will grow to the
extent that it is able to expand its own experimental
and instrumentation base. The absence or inadequacy
of an experimental design and pilot production base
has been one of the greatest weaknesses of Soviet
science in general and of the Academy in particular.
Improvement in this area will enable the Academy
not only to develop new technology for industry but
also to advance the cause of Soviet science, including
basic science.
Outlook for the Economy
Success in applying and disseminating S&T advances
of the Academy will depend upon policy decisions and
reforms in the industrial R&D and production sectors,
and to date such measures have not produced any
significant change. It is not sufficient that Gorbachev
turn science to production. He must also turn produc-
tion to science and make industry more receptive to
technological advance. For Gorbachev's moderniza-
tion drive to succeed, he will have to take additional
and bolder steps to create effective structures and
incentives in the production sector to permit both the
technology push and demand pull for new technology
to work effectively. Moreover, the new technologies
the Academy is spearheading are generally inter-
branch in nature, and the obstacles to their diffusion
into the economy are the most formidable. Progress
here is likely to be particularly slow, and the rapid
pace of Western advance means that the Soviets will
need to exert tremendous effort just to keep from
falling further behind.
On balance, we believe that the Academy's contribu-
tion to modernization of the economy will be relative-
ly modest and, given the long leadtimes required for
technological development and delivery, will not be
felt until well into the 1990s. The Academy can
hasten scientific development and assist industry in
finding applications for new materials and processes,
but it cannot dictate the implementation of S&T
results. Nonetheless, to the extent the Academy can
revitalize itself, strengthen its ties to industry, and
advance S&T priorities critical for sustained industri-
al modernization, Academy accomplishments will
have a positive impact on Soviet economic develop-
ment in the next century.
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Implications for Defense
We believe that the defense sector is especially well
positioned to capitalize on Academy advances. Since
many of the USSR's targeted technologies are essen-
tial for the next generation of weapon systems, the
defense sector will be keenly interested in following
Academy developments. The military already has
effective mechanisms in place to influence Academy
research and implement results, and these mecha-
nisms will continue to dominate if Gorbachev fails to
build an effective management structure to push
technology in the civilian ministries.
The pace of progress in Gorbachev's modernization
program and future military competition with the
West will probably shape the course of Academy S&T
development. Competition for Academy resources
could grow as a result of either a more threatening
international environment and a high-tech SDI-ori-
ented arms race or because the civilian modernization
program falls short of expectations, generating in-
creased pressure for more resources or bolder steps in
the civil arena. The Academy in particular is likely to
be squeezed from both the military and civilian sides
in advancing the new S&T areas underpinning Gorba-
chev's program.
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Delays in Developing the
Astrakhan' Gasfield
Commercial gas production from the Astrakhan' field
started at the beginning of 1987, but the drilling and
completion of wells are years behind schedule. The
drilling delays are scotching Moscow's plans to offset
declines in production from the Orenburg and North
Caucasus fields with a rapid buildup of new gas
supplies from fields in the Pre-Caspian Depression.
The potential for additional problems surfaced in
March, when the Soviets had to shut down the gas-
processing plant temporarily because of a toxic-gas
leak. By mid-April only 21 wells had been completed,
and four of those were leaking poisonous gas.
Though exploitation of the Pre-Caspian petroleum
resources calls for highly specialized technical skills
and experience, as well as equipment appropriate for
deep drilling for sour gas, the Soviets persist in relying
heavily on domestic drilling equipment and technical
skills. Nonetheless, they have been forced to import
from the West casing, tubing, blowout preventers,
wellhead equipment, and gas-processing plants em-
bodying special steels and superior technology. But
the assimilation problem persists: even when they
obtain quality hardware from the West, the Soviets do
the construction and assembly work and operate the
equipment themselves, and the results generally do
not measure up to Western standards.
Background
Gas from the new fields is sour gas containing up to
48 percent noncombustibles-in particular, very high
fractions of hydrogen sulfide (H2S) and carbon dioxide
(CO2) that must be removed in costly processing
facilities. The byproducts are valuable, however, and
the Soviets plan to use the extracted sulfur in fertiliz-
er manufacture and the CO2 in enhanced oil recovery.
In addition, substantial recovery of condensate (natu-
ral gas liquids) is anticipated. The technical problems
associated with development at Astrakhan' are far
greater than those encountered in the northern Tyu-
men' fields. Astrakhan' gas contains up to one-quarter
H2S and a somewhat smaller fraction of CO,. The
presence of these contaminants greatly complicates
both drilling and gas processing (see inset).
Astrakhan' geology is complex, and operating condi-
tions are extremely severe-reservoir pressures about
10,000 pounds per square inch (psi), wellhead pres-
sures about 2,400 psi, reservoir temperatures 110? C
(230? F), and corrosive admixtures of up to 24
percent HS and 14 to 24 percent CO,. Drilling into
highly pressured reservoirs in the presence of toxic
gases without proper drilling fluids, monitoring in-
struments, and reliable blowout preventers is obvi-
ously something to be avoided. The failure ciany
link in the chain of equipment and technology can
cause grave difficulties-if not disaster-and delay a
major program. Nevertheless, with appropriate tech-
nology and due caution in operations, the risks are
manageable.
We have clear evidence that the Soviets experienced
at least one major blowout at Astrakhan' in mid-
1984. A likely cause was the collapse of casing
(imported from Japan) due to very high well pressures 25X1
and temperatures and to prolonged exposure of the
steel to the corrosive effects of H,S and CO,.
Plan and Performance at Astrakhan'
Phase I of the Astrakhan' development program,
which began about 1981, called for the completion of
56 gas wells by 1985; it also specified the construction
of a gas plant to process annually 3 billion cubic
meters (nil) of gas, recovering 3 million tons of
byproduct sulfur and 2 million tons of condensate. By
mid-April 1985
no gas wells had been completed, and by mid-
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December 1986 only 12 had been finished. Some four
months later he total 25X1
number of wells completed had increased to 20. To
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some extent, the shortfall from the number of comple-
tions programed must be ascribed to unrealistic plan-
ning: considering that only 14 exploration wells aver-
aging 4,200 meters in depth were completed during
1976-82, planners should have allocated considerably
more time for the 56 production wells scheduled in
Phase I.'
Despite the substantial lag in drilling activity and well
completions in Phase I at Astrakhan', work has begun
on the Phase II eas-nrocessine nlant.I
Causes of Delay
A strong case can be made that inadequacies in Soviet
technology and equipment used in deep drilling for
sour gas have been the primary cause of slow develop-
ment at Astrakhan'. The completion-in five years of
development drilling-of less than 40 percent of the
production wells planned for Phase I clearly indicates
serious shortcomings:
? The most obvious technical problem is the poor
penetration rates achieved with the turbodrill below
2,000-meter depths.
? Some of the difficulties may result from the Soviet
practice of ordering equipment in large batches.
When obtaining equipment for use under reservoir
conditions similar to those at Astrakhan', US opera-
tors order equipment, casing, tubing, and wellhead
equipment with custom specifications to ensure reli-
able performance under the geologic conditions at
individual well sites. Because subsurface conditions
may vary markedly from well to well, the use of
equipment purchased by blanket orders for develop-
ment of a field can result in inefficiency or even
serious danger at individual wells and, in the end,
may be uneconomical.
in emergencies.
? Another Soviet weakness is in drilling-fluid technol-
ogy. Western drilling operations, especially in areas
known to have high-pressure or sour gas reservoirs,
usually have gas- and mud-logging laboratories with
specially trained personnel at the drilling site to
monitor and analyze the drilling fluid returning to
the surface. Increases in the gas content can indi-
cate potential gas pockets, gas surges or "kicks,"
or-in the worst case-blowouts. Once the gas
reservoir is penetrated, the flow of highly pressured
gas is hard to control. The use of heavyweight
drilling fluids and high-pressure blowout preventers
is mandatory for shutting off the flow of oil and gas
The technical requirements for construction and oper-
ation of sour gas-processing plants are equally rigor-
ous. Pipe and valve connections leading from the wells
to processing trains and storage facilities must form a
hermetically sealed system. This requirement calls for
precise alignment and assembly of components-skills
in which Soviet construction and assembly workers
are notoriously weak. Despite the critical need for
accurate and reliable instrumentation and controls in
processing sour gas, the Soviets decided this January
to operate the first Astrakhan' gas plant before full
instrumentation was installed, possibly because some
instruments ordered from domestic manufacturers
had not been delivered.
The temporary shutdown of the Phase I gas-process-
ing unit in March reportedly followed a toxic-gas leak
at an underground storage facility holding unstable
condensate and oil products removed from the raw
gas. There was no emergency system in place to cope
with unexpected gas leaks, and gas masks and detec-
tion devices were either unavailable or in a state of
disrepair. As a result, four people were killed by the
gas. The accident drew widespread attention, includ-
ing a series of critical articles in the newspaper
Sotsialisticheskaya industriya (Socialist Industry).
Following a late March inspection of the facilities by
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high-level officials, operations at the gas-processing Seeking Western Assistance
plant were suspended for preventive maintenance of To carry out the planned development at Astrakhan',
equipment and supply lines and implementation of Moscow has concluded a series of equipment con-
additional measures for personnel safety. tracts with Western firms. In negotiating these con-
tracts, the Soviets have sought advantages in both
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price and technology from the lively competition
between Western firms (primarily French, West Ger-
man, and Canadian). The contracting has at times
proceeded in fits and starts, probably reflecting inter-
nal Soviet concerns rather than
currency shortage:
? The Phase I gas plant contract ($395 million) was
awarded to the French engineering firm Technip in
December 1982. Western credits were offered, but
Moscow chose to pay cash. That decision may have
been taken because of the USSR's favorable trade
balance with France.
? A Phase I contract for field-development materials
and equipment ($200 million) was awarded to
Mannesmann A. G. of West Germany in January
1983. West German and Canadian offers of conces-
sionary financing for this part of the project were
also rejected in favor of cash payment.
? In August 1983, Soviet foreign trade officials re-
quested a delay in the signing of a contract for 180
well-completion kits for Astrakhan'. The problem
was probably one of allocating import priorities
under circumstances of bureaucratic indecision at-
tendant on the rapid turnover in the Kremlin leader-
ship. Soviet oil earnings in hard currency markets
that year were at a record level.
? Once Gorbachev was in charge, new equipment
orders were soon forthcoming. Technip was awarded
a $236 million contract in April 1985 for the
Astrakhan' Phase II gas plant, with cash payment to
be made in French francs.
? Protracted talks between the Soviets and the Cana-
dian engineering firm Partec-Lavalin have resulted
in a $150 million contract for equipment to be used
in Phase II field development, covering another 50
to 60 wells and related gathering systems and
collection stations. Apparently the Soviets rejected
offers for concessionary Canadian financing and
chose once again to pay cash.
Lessons Learned and Not Learned
The Soviets appear to believe that their field person-
nel will learn all of the techniques necessary for
efficient deep drilling of highly pressured formations
and for the quality construction and assembly work
requisite to producing and processing sour gas. West-
ern observers who have seen Soviet operations indi-
cate, however, that the drilling crews still have much
to learn. The Soviets are coming to recognize the
necessity for tailoring equipment to individual well
conditions in these circumstances. Their request for
delay of at least two equipment orders during 1983-86
probably reflects in part a decision to revise specifica-
tions for some of the equipment that had been
ordered.
Yet, despite the needs highlighted by the lagging
drilling and field development programs at Astrak-
han', Moscow continues its preference for buying
from non-US suppliers rather than US firms offering
state-of-the-art equipment and technical support at
competitive prices. It apparently believes that this
policy will not only avoid dependence on the United
States but also further Soviet political aims in the
West.
Shying away from US suppliers will be a continuing
drag on development at Astrakhan'. While much US-
developed petroleum technology and equipment is
now available from a wide range of Western industri-
al nations (and, indeed, from some in the Third
World), few of the non-US firms can offer the benefits
of comprehensive hands-on technical experience of the
type needed at Astrakhan'. For example, results of
numerous Soviet talks with Austrian, Japanese, and
French pipe-mill representatives suggest that none of
the firms were adequately familiar with state-of-the-
art sour-gas production technology.
The accident that shut down the Astrakhan' gas-
processing plant is symptomatic of the technological
backwardness, careless work habits, and general lax-
ity prevalent in Soviet civilian industry with respect to
construction and assembly work and to the training
and supervision of personnel. The shutdown itself and
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the corrective measures prescribed suggest that some
improvement may be achieved. But-even after earli-
er experiences with sour-gas accidents-the Soviets
still appear to be at a fairly low point on the learning
curve.
The Soviet press indicates that the third gas-process-
ing unit at Astrakhan' is to be manufactured by
domestic industry. In view of the extremely poor track
record of Soviet civilian industry in supplying the oil
and gas industries with the needed special steels and
with equipment fabricated to high standards of preci-
sion and quality, we believe that this decision could
set back completion and successful operation of Phase
III of the Astrakhan' project by many years.
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USSR: Trends in Industrial Output
Index: 4th quarter 1981 = 100
98 1982 83 84 85 86 87
Industrial output
(seasonally adjusted)
Pre-Gorbachev trend b
'Calculated using value added in 1982 rubles.
bAverage annual growth from second quarter 1982
through first quarter 1985 (2.3%).
USSR: Growth in Industrial and
Machinery Output
I
J-M
1987
1
1
1
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Poor First-Quarter Economic Results
in 1986.
Soviet economic growth fell off sharply in first quarter 1987 as a new
quality control system, severe winter weather, and transport snarls disrupt-
ed production. Given the slow start, it is unlikely that the USSR will be
able this year to maintain the improved pace of economic growth achieved
gains.
Despite a sharp rebound in March, industrial production is estimated to
have been less than 1 percent higher than in the same period in 1986. Un-
precedented swings in the level of civilian machinery production contribut-
ed to both the difficulties in the first two months and the improvement in
March. For the quarter as a whole, estimated machinery output was down
nearly 5 percent. On the brighter side, fuels and power production
exceeded plan targets, with gas and electric power posting the largest
30 million tons.
Performance in agriculture during the first quarter was mixed. The
livestock sector did well-meat output, for instance, was up 8 percent. On
the other hand, the Soviets were forced to resume buying foreign grain to
replenish feed supplies drawn down because of the severe winter and
delayed spring. Grain imports for the 1986/87 marketing year could reach
were below the level transported in the same period in 1986.
Major problems occurred in the transport sector. Severe winter cold and
heavy snows followed by spring floods crippled the railroad network-the
backbone of the transport system. Huge backlogs in the shipment of coal,
timber, and metal ores created major headaches for industries using these.
inputs. the transport system almost
collapsed in January. For the period as a whole, total freight shipments
An increase in the number of hours worked clearly accounted for much of
the improvement in the performance in March. Scheduled work time was
almost 5 percent higher this March than in March 1986. The impact of the
new quality control regime (Gospriyemka) is less clear. According to the
Soviet press, the rejection of products that did not meet quality standards
accounted for much of the dropoff in machinery output in January and
February. It is possible that the enterprises operating under Gospriyemka
gradually learned to meet the new standards. Alternatively, quality
standards may have eased, a development that would make the improved
performance in March a false signal of progress for Gorbachev's modern-
ization program.
37
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Soviet Foreign Trade, 1982-86
Hard Currency Trade
Billion US $
40
a Preliminary.
Exports
Imports
LDCs
Developed
West
Clearing Account Trade
Billion rubles
60
Exports
Imports
Other
Eastern
Europe
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Soviet Trade Surplus Up in 1986
The USSR registered sharp increases in hard currency and clearing
account trade surpluses last year by clamping down on imports from both
socialist and nonsocialist countries and by increasing the value of arms
exports to the Third World.
Total hard currency imports for the year dropped by 11 percent, largely be-
cause of reduced grain imports; Moscow maintained imports of capital
goods by selling more gold and borrowing actively in Western financial
markets. Most of an estimated 40-percent increase in the value of arms ex-
ports resulted from the depreciation of the dollar and increased deliveries
to Iraq. The $7 billion earnings from arms sales were largely on paper,
however, because Moscow extended additional credits to the LDCs to
finance the purchases and is unlikely to be repaid on schedule.
The Soviets' clearing account trade surplus increased by more than 50
percent, to 4.4 billion rubles, largely because of poor export performance
by several East European countries. Deliveries from East Germany-the
USSR's largest trade partner-dropped 6 percent, while those from
Czechoslovakia and Hungary leveled off. The USSR increased exports to
Eastern Europe by 6 percent. The slowdown in the growth of Eastern
Europe's exports, which runs counter to Moscow's push for more balanced
regional trade, may reflect a tougher Soviet attitude toward the quality of
East European goods. the Soviets have
increased quality control inspections of East European deliveries, particu-
larly those from East Germany and Czechoslovakia, and will no longer
accept goods that are not on a par with Western goods. Soviet exports to
clearing account partners Yugoslavia, Finland, and India fell sharply,
leading to a downturn in overall trade and a Soviet deficit of nearly 2 bil-
lion rubles with these countries as Moscow was unable to offset low prices
for Soviet oil deliveries.
Ligachev's Number-Two Standing Begins To Slip
Yegor Ligachev's standing as number two in Gorbachev's Secretariat
appears to be in doubt. In 1985 and 1986, he was the top overseer of per-
sonnel matters and ideology and was active in dealing with economic
reform issues as well. Now, however, other leaders have moved into
Ligachev's zone of authority. Lev Zaykov, the only other full Politburo
member on the Secretariat, appears to have moved into the forefront of
party personnel matters, and Aleksandr Yakovlev, a member of the
Secretariat recently promoted to candidate Politburo member, has begun
to expand his role as overseer of propaganda. A Soviet historian who seems
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to have inside information asserted to Western media in February that
Ligachev has in fact lost the ideology portfolio and has been assigned to
oversee the Soviet agro-industrial program. Indeed, Ligachev's article in
the March issue of Kommunist dealt exclusively with agricultural reform
issues. He continues to speak on ideological and foreign policy themes,
however, and still acts as the regime's top troubleshooter in economic areas
other than agriculture.
The change in Ligachev's fortunes appears to be linked to the January
plenum on cadre policy. A knowledgeable European Communist told US
officials in Moscow that Ligachev initially drafted Gorbachev's report, that
Gorbachev rejected it and had Yakovlev and others revise it, and that
Gorbachev postponed the plenum three times while he pressed for a more
radical agenda. That agenda included proposals for a fundamental policy
shift toward "democratization" of the party cadre selection process and
"pressure from below" on local party leaders.
On balance,) Gorbachev has embarked on a
reform in the party that Ligachev is not suited to carry out. Now a new
kind of battle may have begun, aimed against the prevailing "administra-
tive-command" psychology among chiefs of oblast party committees
(obkoms)-which is just the kind of tough party style that Ligachev
apparently values. The new policy tends to make the positions of all obkom
chiefs less secure-undermining even those whom Ligachev helped put into
place.
Even in the area where he was most active on Gorbachev's behalf-
unleashing Soviet writers and other intellectuals to attack the conservative
resistance to Gorbachev's programs-Ligachev now seems to fear that he
has started something that threatens to get out of hand. One well-
connected Soviet told US officials that during the plenum Ligachev
privately criticized the excesses that had begun to appear under the rubric
of glasnost. He made a speech to cultural figures in Saratov in early March
warning against the tendency of liberal intellectuals to discard too much of
what he views as solid patriotic literary achievements of the past, and
several conservative officials of the RSFSR Writers' Union have approv-
ingly quoted him on this score.
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UK Wins Soviet Chemical Contracts I 25X1
Prime Minister Thatcher's trip to the USSR has paid off for British firms
in the signing of several contracts for chemical projects. The largest
contract, valued at $147 million, calls for the construction of a polypropyl-
ene plant, based on US technology, with a capacity of 100,000 tons per
year. The plant, to be located at Budennovsk, is the remnant of a previous,
more ambitious Soviet plan to create a vast petrochemical complex valued
at about $1 billion. No details are available on the financing of the plant,
but product buy back may play a role.
Another British firm signed a contract for $31 million to revamp and
expand an acrylic fibers plant at Saratov. The project, scheduled for
startup in early 1988, calls for the installation of a 7,000-ton-per-year line,
which will bring capacity to 37,000 tons annually. The British firm will
supply technology and equipment and supervise construction and startup.
Another contract worth $17 million provides for the supply of high-speed
machinery to texturize yarns for hosiery and tights at the nylon fiber plant
in Klin, and a $33 million deal provides for the supply of cloth-cutting ma-
chinery to the USSR. Both fiber contracts will be financed under buyers'
credit backed by the Export Credits Guarantee Department.
Thatcher and General Secretary Gorbachev agreed to increase UK-USSR
trade substantially by 1990. Opportunities for doing business with the
USSR seem to be opening up under Gorbachev, and British businessmen
see the Soviet economy as a major business opportunity. They claim that
the Soviet approach to trade and investment is more practical than at any
time in their experience. The British, however, will face stiff competition
for future contracts from West German and Japanese firms.
41 Secret
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Secret
Secret
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