SOVIET FINANCIAL BALANCE SHEET

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90G01353R000800020010-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 5
• Document Creation Date: December 27, 2016
• Document Release Date: June 28, 2012
• Sequence Number: 10
• Publication Date: July 2, 1988
• Content Type: MEMO

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CIA-RDP90G01353R000800020010-5
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DCI
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3637 (10-81)
Declassified in Part - Sanitized Copy Approved for Release 2013/12/18:
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Executive secretary
6 Jul 88
Date
STAT
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CIA-RDP90G01353R000800020010-5
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Declassified in Part - Sanitized Copy Approved for Release 2013/12/18:
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Declassified in Part - Sanitized Copy Approved for Release 2013/12/18: CIA-RDP90G01353R000800020010-5
RegiSirv 1
INTERNATIONAL
SECURITY AFFAIRS
THE ASSISTANT SECRETARY OF DEFENSE
WASHINGTON, D. C. 20301-2400
MEMORANDUM FOR ROBPT GATES
SUBJECT: Soviet Financial Balance Sheet
2 JUL 1988
88-2675X
(S) We believe it is time for a fresh look at the
Soviet economic dilemma and the pressures it is placing on
Mikhail Gorbachev for changes in Soviet foreign policy or
resource allocations to the military. Gorbachev's unprece-
dented attacks on the bureaucrats at the party conference
reinforce our view that the economy continues to sputter and
the reforms are bogging down.
(S) The Soviet economy is suffering due to economic
mismanagement, massive spending on military modernization
and the client states, and the dislocations created by Peres-
troika. The USSR is also afflicted by deteriorating terms of
trade with the West as oil earnings have declined while
imports have become much more expensive. Pressures on the
Soviet economy are unlikely to abate in the near term, meaning
that Gorbachev may be forced to choose soon between priorities
that could affect U.S. interests for better or worse.
(S) One of Gorbachev's immediate problems is the shortage
of hard currency in .the Soviet economy. He will be presented
With three unpalatable alternatives if hard currency earnings
fail to rise:
0
He can continue the reductions in Western machinery imports
at the cost of economic efficiency and popular support for
Perestroika (The Soviet machine building industry is falling
far below output targets and has become a Major bottleneck).
0
He can step up borrowing in Western capital markets,
which leaves the Soviets open to the potential use of
political leverage by the West.
0
Or, the Soviets could scale back on active measures
and other low-intensity conflict operations in the West
and the hard currency support (or its equivalent)
provided to Cuba, Nicaragua, Vietnam and other clients.
Regardless of what choices are made, all decisions to spend
hard currency under these circumstances are made more painful.
CisT7,1fM
Det.-;asO'y ;.srl OADR -/e
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Declassified in Part - Sanitized Copy Approved for Release 2013/12/18: CIA-RDP90G01353R000800020010-5
2
(S) The U.S. has an obvious interest in how Gorbachev
responds to his hard currency crunch. His choices may present
us with opportunities to further the settlement of regional
disputes or advance the cause of human rights. In order to
shape policy we need a new, comprehensive analysis of the USSR's
financial balance sheet--the sources of hard currency earnings
and the drain on those earnings by imports, debt service and,
most of all, the hard currency support for client states,
active measures campaigns in the West, and all other programs
requiring expenditures of hard currencies. The latter should
include the approximate total hard currency costs of KGB and
GRU operations, payments to front groups, the costs of sponsor-
ing conferences, payments for publicity, travel expenses,
technology theft activities, etc.
(S) A recent study completed by Rand estimated the USSR's
total hard currency outlays on the Soviet empire alone to run at
$15-20 billion annually, which is an enormous amount that is not
being met by Soviet hard currency earnings (around $30 billion
annually) given the need to service debt and pay for imports.
We need to know if the Rand estimates are even in the ballpark.
If they are, the Soviet "empire" could become even more of a
drag on Soviet resources and helps explain why they are at
least talking to us about settling the regional disputes. We
tend to think the Soviets would show more willingness to cut
their losses in the Third World than to sacrifice their
military buildup or Perestroika. CIA's views on this would
be greatly appreciated.
RICHARD L ARMITAGE
Assistant Secretary of Defense
(Iniemationel Security Moire),
SFIRFT
Declassified in Part - Sanitized Copy Approved for Release 2013/12/18: CIA-RDP90G01353R000800020010-5