LETTER TO TOM LATIMER FORM (SANITIZED)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90B01390R000400510016-3
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 5
• Document Creation Date: December 27, 2016
• Document Release Date: April 20, 2011
• Sequence Number: 16
• Publication Date: June 24, 1986
• Content Type: LETTER

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STAT
STAT
I J Office of Congressional Affairs
UE *1- 1 11
Washington, D.C. 20505
Telephone:[phone] Jun 86
TO: Permanent Select Committee on Intelligence
House of Representatives
Attn: Tom Latimer
requested of
Attached are comments on the Washington Post
article on Soviet Defense Potential which you
OBSOLETE
REVIOUS
z 86M 1533 P
EDITIONS.
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Sovriet Ability
To Accelerate
Arms Debated
Reagan SALT Sl'anee
Shaped by Economics
By Walter Pincus
wwwtu ie.t Sufi Wrrm
President Reagan has adopted
the view, still not accepted by the
Central Intelligence Agency and
many Soviet experts, that the So-
viet economy is so overburdened
that Moscow's current level of de-
fense spending could not expand in
response to U.S. abandonment of
the SALT II treaty limits, according
to sources inside and outside the
government.
Reagan's attitude was shaped
largely by a meeting in April with
Henry S. Rowen, a Soviet expert on
the faculty of the Stanford Univer-
sity Business School and a senior
research fellow at the Hoover In-
stitute of War and Peace. Rowen
headed a recent CIA review of the
Soviet economy, which described
Moscow as facing a "terrible eco-
nomic situation."
Rowen concluded, according to
colleagues on the panel, that Soviet
a
th
t Moscow could finance the kind
of major weapons buildup that had
been predicted by a 1985 CIA stu-
dy. In a telephone interview from
France where he is vacationing,
Rowen said that he was "not saying
they could not respond with some
increases."
"The president believes the So-
viets are in bad shape economical-
ly." one source who met recently
with Reagan said.
Kenneth L. Adelman, director of
the Arms Control and Disarmament
Sae DEBATE, A18, Col. 1
w Soviet officials hint at bet-
ter ties with U.S Pntge A 13
Soviet Ability
To Accelerate
Arms Debated
DEBATE, From Al
Agency, who pushed for Reagan'.,
May 27 announced intention to ex-
ceed the limits of the unratified
SALT H treaty, captured the pres-
ident's view last week when he
wrote in The New York Tuna that
"the Soviets already have their ac-
celerator near or on the floor" and
thus could not significantly increase
their strategic weapons production.
Not everyone agrees.
Reagan and his aides are "pro-
foundly misguided," according to
Dmitri Simes, a Soviet expert with
the Carnegie Endowment for Inter-
national Peace. Soviet leader
Mikhail Gorbachev "definitely has
serious problems at home and
abroad and in the long run the (Rea-
gan) view might prove correct.-
But the new Soviet leadership
has "a new element of self-
dence bordering on arrogance ... .
If we believe they are on the ropes
and they, in contrast, feel they can
keep Mother Russia not second to
anyone, that can lead to a bad time,"
.Simes added.
David Holloway, a specialist on
Soviet defense policy at Stanford
University, said that. although the
Soviet economic problems are se-
rious, "they are not so bad that they
can't stay in the arms race ....
The key thing is not economic but
political, th' willingness of Gorba-
chev to ui e that kind of decisaw
and mobilize support .0
At a recent news conference, So~
vu-t Embassy arms control special-
ist Vitaly Churkin bristled when
asked about the Reagan administra-
tion view that Moscow could not un-
dertake an arms buildup. I would
like to point out that as you know
historically, if anything, we are %-.,rv
good at rising up to challer,gv,. If
we are challenged, we will ccrte'nhy
he able to respond in kind.",
While there is debate anunig
Kremlinologists over the calMh-l-
ities of the Soviet military-industru!
complex, there is surprising una-
skoky Gorbachev has been
U*g to cap Moscow's defense
Under Gorbachev's leadership,
aoooedittg to Steven Meyer, a So-
uiet espert at the Massachusetts
Institute of Technology, the recent
Soviet Puty Congress platform ap-
proved a change in the description
of bow defense spending Levels will
be determined in a way that permas
t partyparty's political leaders to lower
the
The new standard, Meyer said, is
to fund the military so it can pre-
vent "strategic superiority of the
forces of the imperialists," wherr...
Lm previous standard was a pledge
to provide the Soviet military , -
whatever it believed needed "to re-
Lably defend the bomela id."
Under the old formulation, the
Soviet chief of staff would have the
fiinai word on what was needed
Now, Meyer said, the party lead-
ership will be able to insert its
views on what the United States is
doing as part of the miz.
U.S. intelligence sources said
that the policy shift initially came to
light after reports arose of a clash
between Soviet political and mili-
tary figures in high-level confer-
ences.
Meyer and Holloway said they
believe the change gives Gorbachev
a new tool to control military fund-
ing. 'The shift reflects not just eco-
nomic but also doctrinal constraints
an the military; Holloway said.
Row= admowldged that -Gor-
bachev is trying-to hold down if not
cut defense spending," but said tire
move relates to overall Soviet eco-
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 Sanitized Copy Approved for Release 2011/04/20: CIA-RDP90BO139OR000400510016-3 - S. J.
lJoroacnev ana the Ailing Russian Bear 4/21/86
By Hrrrar S. Rnwrn'
And VLADIMIR G. TK#ML
The leadership of the Soviet Union Is
confronted with the most fundamental and
difficult of choices, one made more urgent
by the precipitous decline In oil prices:
? It faces The prospect of continued,
per aps worsened, economic stagnation.
Overcoming this condition requires a ma?
jor Increase In the productivity of labor
and capital; this increase Is sought
through new managers, more discipline, a
crackdown on alcoholism, and renovation
of the nallon's stock of machinery. But
what Is really needed Is to reduce the re?
ilme's central control over the economy.
Hbuiiion of eincome, transform slier
Inflation Into open Inflation and probably
cause labor strife. In time, It would dimin-
ish party control over the country.
? Without such a shift the country Is
fated to remain economically backward-
behind by about a generation 135 to 30
years)-relallve to the West. Although
such a lag certainly doesn't exist for the
Soviet military sector today, over lime Its
ability to compete militarily will be In
Jeordy.
fills Increasingly apparent that the pe-
riod of rapid economic growth from 1950 to
1915, which averaged k% a year, was a
one-lime shill from a very backward,
largely agricultural society to a semi-mod.
ern. largely Industrialized one. This growth
was achieved through extensive explolta?
Lion of natural resources, more labor in.
puts, and technology obtained from the
%es(. Since 1975, estimated gross national
product growth has averaged a little more
than 29, a year 11% per capital. Although
growth In the West also slowed over this
period, the West was badly burl by all.
price rises while the Soviet Union. a major
oil and gas exporter, profited from them,
No Call for Sacrifices
year In 1o121 Investment. A huge Invest.
ment Increase Is planned for machine
building 180%) and a large one for energy
)about 30% for oil, coal and electric
power). The large share going to agricul-
lure Is to be held nearly constant. So all
other categories will have to (all: transpor-
latlon, construction, housing, services. The
key, then, must be Increased productivity.
Factors of production lo( labor and capi-
1a1), which declined about 1% a year after
1975, are now to increase by almost 1% a
Year.
This Is pot a credible plan. An obvious
arobiem Is a much worsened trade pros.
pecl. Since the early 1h ot1 the Soviet econ-
omy has become much more dependent
upon trade; there have been massive Im'
Will Of food, consumer goods and me.
derwrlting loans and overpaying for gas.
Moscow Is already squeezing the East
Europeans to get more and better ma-
chinery out of them. The days of Soviet
subsidized oil are over; Indeed, Moscow is
now Trying 10 get more from them In ex-
change for less. The limit to this squeezing
process will be the fear of further popular
eruptions In Eastern Europe.
In short, economic performance will
probably be no better than in the recent
past and could easily be worse. (The Anil.
drinking campaign, potentially beneficial
In The long run, probably won't help soon,
It leaves people with more money but few
additional goods; the likely result Is more
Inflation.) One c uence-of symbolic
Importance-Is that Japan by 1990 may
have displaced the Soviet Union as the
of collapse; lb) the Soviet Union Is not go-
Ing to strike against The Wesl-retreat is
more In character for a Leninist system In
difficulty, and Icl Mr. Gorbachev badly
needs relief from the military competition
of the West and just as badly needs the
West's resources.
Issues to Be Aware of
What should the West do? Here are
Some guiding principles. First, the democ.
racies have an Interest In a politically di-
versified Soviet system. A Judgment must
be made on whether helping the ailing
bear or having unsubsidized economic re-
lations is the better way to promote this
goal. Many Europeans and some Ameri-
cans bold that Western subsidies keep the
Soviets from becoming desperate and
more dangerous, and promote useful
change. That theory, In the form of de-
tente, worked poorly In the 1971 and pros.
pects for It now aren't good. The key rea-
son Is that the Moscow establishment
doesn't want to change; the more help it
gets, the less likely It Is to change.
Second, all capitalist leaders should be
Conscious of the weakening Soviet competl-
Uve position. For the Japanese it bears on
their recovery of four small Soviet occu.
Pled Islands north of Japan's mainland; for
the Europeans it offers Increased scope for
reducing the Soviet military threat to them
(without matching Western concesslonsi.
for the U.S., which has an Interest In all of
these issues, It bears on nuclear-arms-con-
trol negotiations, extensions of the Soviet
empire in the Third World, Jewish emigra-
tion and other matters at Issue.
Third, the more communication and
personal contact there Is between the peo-
ples of the Soviet Union and the West-and
the freer the communications among the
Soviet peoples-the more constrained will
be the arbitrary power of the rulers. In ad-
dition to what we unilaterally do (today
with radios, tomorrow perhaps with direct
TV broadcasting), promoting this purpose
Should be prominent in our continuing
transactions with the regime.
The Pressure is mounting In Moscow to
travel partway down the capitalist road.
Although significant movement seems un-
likely soon, there may be some by The end
of the decade. At a later stage In the evolu-
lion of the Internal crisis, a wider range of
positive Western actions to promote
change might be warranted. But that is a
later and uncertain prospect.
Mr. Gorbachev tabs about major changes that
"ought" and "should" be mad., But there is t! poverty G/
new, basic Ideal, and nothing major happens,
ehinery. IBy the early 19806 more than
one-third of newly installed machinery was
Imported.) Now, that growth source Is
gone. After years of increases. oil produc?
lion has declined for two years and In 1985
the volume of oil exports to the West de?
dined 30%. To compound the problem, the
dollar price of oil has fallen about one-half.
IThls drop lowers the value of natural gas
sold to Western Europe about 11.6 billion a
year; It the Europeans don't negotiate a
payment cut, they will be giving the So-
vlets a huge gilt.) To top It off, weapons
ales to oil-rich countries, a market re-
cently valued at 15 billion to 66 billion a
year, are shrinking fast.
Altogether. Soviet hard-currency earn.
Ings In 1906 will be half what they were in
1901. Moscow's response last year was to
borrow an Adlli
15 billion. the end of 198It wll
There also Is abundant evidence of seek more this year IBy
6, its
grave social Ills. Infant mortality has been net debt probably will be about 120 billion
Increasing, alcoholism has reached alarm- as against annual hard-currency earnings
Ing levels, and life expectancy has been of under 520 billion. Further borrowing
declining for 20 years. By 1960, the average from private sources will come harder-In
life expectancy of men had receded to the the absence of Western government guar-
Irlld-1950s level of about 60 years. antees. Moscow will try to sell more oil to
The new Five Year Plan (1986-9o) the West, perhaps diverting more from the
promises to get the country moving again, East Europeans for that purpose, and
It sets an ambitious target of 5%-a-year more told and diamonds, but If oil prices
growth In 2000. It calls for a more modest stay down. It won't come close to recoup
3'i% GNP Increase for the next five years, Ing Its losses,
Industrial output growing at It% a year The result will be a sharp fall In some
and machinery output at around 7%. The combination of Soviet food and equipment
supply of consumer goods Is to grow also; Imports from the West; the choice of which
there was no call for sacrifices at the re- To cut will be a hard one. At the very least,
cent 27th Party Congress, extra machine III
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world's second-largest economy.
Mr. Gorbachev talks about minor
changes that "ought" and "should" be
made. But there Is a poverty of new, bflslc
Ideas, and nothing major happens. Of
course, the bureaucracy mightily resists
Change and Mr. Gorbachev will wanl to
limit chances 10 those essential to eking
out enough economic gains to enable him,
above all, to keep control over the country
and also to sustain Its military strength
and Its foreign empire. With good weather,
enough Western resources, and skillful
management, he can deter the riskier
strategy of giving people more economic
freedoms In order to stimulate growth.
It the regime doesn't change course. It
will gradually lag In military competition,
given the constraint on resources and the
evolution of modern technologies. These
technologies center on the processing and
transmission of information, technologies
that a centrally planned system not only
lags in creating but that also threaten Its
Internal control. Moreover, the regime is
not In good shape to lake on Costly new
ventures abroad. Still, a note of caution:
Operations In Afghanistan, Angola and
Nicaragua are being pursued more vigor-
ously under the new management; It won't
pass up low-risk opportunities Ilor Instance
In Pakistan or Iran), and It still possesses
a powerful military establishment.
Although there is much uncertainty
about If and when Mr. Gorbachev will try Mr. Rowe,, is a professor at the Stne-
to move toward a markeullke system and ford U
u
h?nf and n se