USSR: CURRENT OUTLOOK FOR THE ECONOMY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001900030184-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 17
• Document Creation Date: December 19, 2016
• Document Release Date: August 18, 2005
• Sequence Number: 184
• Publication Date: November 1, 1974
• Content Type: REPORT

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In 1973 the Soviet economy recovered strongly from
.the weak performance of 1972. Results in the first three
quarters of 1974 indicate that the forward momentum is
continuing.
Last year's achievements included:
-- overall economic growth of about 7.5%,
recovery of industrial growth from the slowdown of
1972,
-- a record grain crop of 222.5 million tons, and
-- a marked increase in the availability of consumer
goods, especially food.
Soviet industrial growth so far in 1974 has been
exceptionally good:
-- Industrial production will probably grow by more
than 7% this year, the highest rate since 1967.
-- Leading the industrial advance are producer
durables, processed foods, and chemical products;
with meat products up more than 10% over last
year, urban shortages have eased.
-- Lagging are ferrous metals and construction
materials, already in short supply.
Grain output this year will amount to about 195 million
tons:
-- We estimate domestic requireirents and export commit-
ments in FY 1975 at 200-210 million tons, or 5
to 15 million tons above production.
-- Recent Soviet purchases of foreign grain together
with drawdowns from the reserves established froii
the record 1973 crop should cover the shortfall.
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Until this year, the USSR has been unable to generate
sufficient exports ~o finance growing imports from hard
currency countries. In 1973, the Soviet trade deficit
with these countries was $1.75 billion. But there has
been a major turnaround in the Soviet hard currency picture.
-- High prices for oil and other raw materials will
increase the value of Soviet exports substant..4ally;
at the same time, grain imports have declined
in 1974. An export surplus of $1 billion to $1.5
billion is erected in 1974. The 1975 surplus
may well be larger.
-- High gold prices provide an additional cushion.
At $150 an ounce, sales out of current production
would earn the Soviets over $1 billion in 1974
and even more in subsequent years.
The strong Soviet hard currency position will improve
the USSR's bargaining pow.. er in the international economic
arena over the next few years.
Moscow can now afford to pay cash as it agreed to
do recently for $S00 million worth of West German
equipment for the ursk steel complex and for
$100 million of International Harvester crawler
tractors.
The USSR can.resist high interest rates and is
likely to bargain hard on other commercial terms.
The Sovi+-!ts can also consider postponing exports
of some commodities, such as diamonds, which
probably will bring higher prices in the future.
The main underlying problems in the Soviet economy
-continue to be:
An inability to smoothly translate knowledge of
new techniques and new products into large-scale
production.
CIA/OER
4 Nov 74
Acute shortages of housing, generally poor quality
of consumer goods, and indifferent service in the
consumer sector. 4
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Trends in US-Soviet Trade
US-Soviet trade in 1974 will decline from the record
level of 1973: trade turnover will. fall. from $1.4 billion
to about $1 billion because of the sharp decline in US
exports of agricultural products. Exports will fall from
almost $1.2 billion to $G00-700 million. Imports will
double, however, to roughly $400 million. The US export
surplus in 1974 will accordingly be less than one-third
and possible only one-fifth the $1 billion level achieved
in 1973. In 1975 increased US exports of machinery and
equipment and large grain shipments will probably push US
exports above 1974 total .s. smports may be higher in 1975
as well.
Data for the first nine months of 1974 show that the
sharp decline in deliveries of US grain and soybeans was
responsible for the fall in exports (see attached table).
.Exports of machinery and equipment were only slightly above
those of last year. The increu:.a in imports was paced by
oil and oil products which matched imports for all of 1973.
Imports of platinum group metals also made a strong showing.
For 19.74 as a whole, US exports will probably decline
40-50%. About $100 million in grain is scheduled for
delivery to the USSR during the last quarter, so that total
grain exports for 1974 will be roughly $300 million.
Deliveries of machinery and equipment are not moving as
qu4.ckly as anticipated, although a sharp rise in the last
quarter could bring the total for the year as high as $300
trillion. Total US exports to the USSR are unlikely to exceed
$700 million and may be even less.
US imports in 1974 will depend heavily on the volume and
price of oil. increased imports of oil for the winner heating
season could boost imports to perhaps $150 million. Platinum-
group metals are being imported at a higher rate than in 1973
and may more than double this year to about $150 million.
In 1975 US exports probably will exceed the 1974 level.
About $300 million in grain deliveries are already scheduled
and more Soviet orders are possible in the fall of 1975.
Soviet contracts for US machinery and equipment have increased
annually and deliveries to the USSR could be on the order of
$400-500 million. Imports may continue to increase,
particularly if recent trends in imports of oil and metals are
sustained. The granting of MFN treatment to the USSR might
have some impact on imports, espec:.ally diamonds.
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US-USSR Trade
1973-1974
Million US S
January - September. Year
1973 1974 1973 1974 (est)
.US Exports
TOTAL 972 415 1,187 600-700
Grain 707 194 837 300
Soybeans 67 -- 67 -
Machinery and Equipment 137 151 204 200-300
Chemicals 14 20 17 30
Iron and Steel 7 5 14 10
Other 40 ' 45 48 60
US' Import's
TOTAL 137 264 214 400
Oil and Oil Products 36 77 76 150
Platinum Group Metals 60 112 75 150
Diamonds 11 9 17 15
Chronic ore 3 7 6 10
Nonferrous Metals 11 33 18 45
Other ? 16 26 22 30
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USSR: ' The Siberian' Projects
Large-scale investment in Siberia is a major element in
the Soviet 15-year plan (1975-1990) now on the drawing board.
Plans call in particular for more intensive development of
oil, gas, coal, mineral, and timber resources and the
construction of a second trans-Siberian railroad line to help
develop these resources. The Siberian projects are designed
to provide for the long--range needs of the Soviet economy,
meet export commitments to Eastern Europe, and generate extra
output that can be sold to hard currency countries.
Many of the richest deposits are located in out-of-the-
way areas where the climate is unusually severe. These difficult
conditions pose technical challenges in transportation,
construction,and production that Moscow is not able to face
without extensive foreign assistance. The Siberian projects
completed or approved involve about $3.5 billion in foreign
investment, almost all Japanese or West German. Foreign
investment in projects still under discussion could exceed
$10 billion, of which the US share might be two-thirds.
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A. Forestry Projects
1. First Tirber' Project
The first development project involving foreign
participat?,n, begun in 1968, called for exploiting timber
resources along the i,mur River in the Soviet Far East. It is
now completed. Under Japanese credits, the USSR imported
$133 million in timber cutting and hauling equipment and $30
million worth of consumer goods- Im return, the USSR supplied
the Japanese with a total of 8 million cubic meters of saw
logs and pulp wood during 1969-73. Soviet earnings from these
exports roughly covered the cost of the project-associated
imports from Japan,.
2. ' Second Timber Project
In July 1974 the USSR concluded a much larger contract
with the same Japanese companies,. The USSR in 1975-78 will
import $550 million in Japanese timber cutting and processing
equipment, ships, and consumer Goods. Japanese F.xiribank credits
will cover the purchases. The credit terms for the logging
equipment and the ships -- valued at $500 million -- vary from
six to eight years at 6-3/8% to 7-1/2% interest. The USSR
will deliver more than 18 million cubic meters of saw logs and
other timber products to Japan during 1975-79 at prices to be
negotiated annually. Soviet earnings from these deliveries
could be double the value of the Japanese credits.
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3. - wood Chin Plant
In December 1971 a consortium of Japanese companies
agreed to help the USSR build a wood chip plant in the Soviet
Far East. The contract called for ?Tapan to supply the USSR
with $45 million in machinery and ships in 1972-75. Soviet
purchases were to be covered by a five-year, 6% loan backed
by the Japanese Exirbank. In return, Moscow was to supply
over 12 million comic ztexs of mod chips and pulp to the
consortium during 1972-81. Prices of the chips and pulp, fixed
for the first six years, were to be renegotiated in 1977. This
agreement is not being implemented on schedule; the Soviets
have ordered less than 25% of the equipment to date.
4. ' Pulp/Paper Plant at Ust'21i~sk
The USSR is building a major wood processing center at
Ust' Ilimsk, located on the Angara River northwest of Lake
Baykal. The center will process annually 500,000 tons
of wood
pulp and .1.2 million cubic Meters of lurber. . Factories to
produce chip boards will also be built. The Ust' Ilimsk
development is a Bloc-wide project; Romania, Poland and East
Germany are providing large amounts of equipment in return for
long term deliveries of wood pulp. In addition, the USSR has
ordered $180 pillion worth of equipment from the West -- largely
from France, Finland, and Sweden.
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B. 'Energy-Related' Projects
In 1973 the USSR concluded a general agreement with
US and Japanese firms for the development of natural gas
deposits in the Yakutsk region in eastern Siberia. El Paso
Natural Gas and Tokyo Gas have reached- an agreement on their
joint participation in the exploratory phase of the project.
The project would entail the construction of a 1,200
mile pipeline from Vilyuysk to Nakhodka on the Pacific
Coast, where facilities to liquefy and-export the gas would be
built. Japan and the United States would each receive 1 billion
cubic feet per day (cf/d) of liquefied natural gas (LNG) over
a 20-year period beginning about 1985. Roughly $3 billion in
Western plant and equipment would be supplied by the US and
Japan and, financed by long-term credits. '
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The existence of sufficient reserves to justify such
a large investment is in doubt; three to five years of
exploration will be needed to verify the reserves claimed by
the USSR, The Soviets have asked for $200 million in US and
Japanese credits to support this exploration. Although the
'Japanese have agreed to finance half of this amount, their
participation is contingent on the availability of'a matching
amount from the US Eximbank. If US Exim'bank financing becomes
available, a general agreement might be reached by early 1975.
2. North Star LNG Project
A consortium of three US companies -- Tenneco, Texas
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Eastern, and Brown and Root -- has 'ieen considering a
cooperative venture with the USSR to import 2 billion cf/d
of the gas would come from the large Urengoy deposit in
Western Siberia via a pipeline to an export terminal near
Murmansk. Difficulties over the pricing of the gas and the
availability of Western financing have hindered progress on
the negotiations. The project depends on Eximbank credits and
guarantees to cover Soviet purchases of up to $2,.5 billion in
Western equipment for the pipeline, liquefaction plant, and
port facilities. Even if an agreement is reached soon,
deliveries would not begin until the early 1980s.
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3., Natural Gas to Western ' Europe
In recent years the USSR has contracted to deliver
2.billion cf/d of natural gas to testern Europe by 1980'.
Although the gas is now being piped from Central Asian and
Ukranian gas fields, future deliveries may come from the
Urengoy fields the intended source of the North Star
deliveries. A major pipeline system, which now supplies gas
to Moscow and Leningrad from deposits in the Komi Autonomous
Republic, probably will be extended to Urengoy as additional
gas deposits are developed. This pipeline (the Northern
Lights) will be tied into the gas pipeline network now
connecting Eastern and Western Europe.
The Soviets have relied on West-European suppliers for
much of the line pipe and related equipment required for this
and other natural gas pipelines, with imports from the West
tied to the future gas deliveries. To date the USSR has
contracted for $2 billion in ping: and pipeline equipment from
the West. By 1980, annual Soviet earnings from natural gas
sold in Western Europe khould exceed $8 billion.
4.
Sakhalin Offshore Exploration
The Soviets are nearing final agreement with a Gulf
Oil--Japrnese consortium to explore offshore oil and natural
gas deposits on the Sakhalin continental shelf. Last April
the USSR and Japan agreed in principle to explore these
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.reserves. -The accord called for Japan to provide $100 million
to $200- million in long-term loans to finance the exploration.
In return, Japan would receive a long-term option to purchase
50% of all oil recovered.
railway equipment, and consumer goods. In return, the USSR
will supply the Japanese consortium with a total of 104 million
t:.ns of coal during 1979-99, about 5% of
projected Japanese
needs. If coal prices stay up, Soviet earnings from the
offshore reserves on the Sakhalin continental shelf could
equal the reserves claimed for Alaska's Prudhoe Bay. Total
Western investment required to explore and develop one or two
major offshore oil fields night well exceed $1 billion.
5. Chul'man Coal' Der>osi-'%--s
In June 1974 the USSR signed an agreement with a
consortium of Japanese firms to develop coking coal deposits
near Chul'man. At the same time the Soviets concluded an
agreement with Japan's Eximbank for $450 million in long-term
credits to finance Soviet purchases of coal mining equipment,
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project could exceed the cost of foreign credits by several
billion dollars. US firms may be asked to supply some oL
the advanced equipment required by the USSR.
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C. Infrastructure
.1.. Baykal-Amur Railroad
Moscow has decided to build a second trans-Siberian
railroad running from 100 to 500 miles north of the existing
trans-Siberian line. Some segments at the Eastern and
Western ends of the planned Baykal-Amur M.agistral (B7,M)
already have gone into operation. The W -M will provide access
to important Sibrrinn nineral deposits -- including coal, copper,
iron ore, and gold -- and open up new lands for industrial and
agricultural development. The new line will be less vulnerable
than the existing trans-Siberian line, which at some locations
is within ten miles of the Chinese border. In October 1974
the USSR agreed to purchase $100 million in crawler tractors
from international Harvester to help in building the new line.
? 2. ' Port Development Pro,lect
? In late 1970 the USSR signed an agreement with a
consortium of Japanese firms for the joint development of port
facilities at Vostochnyy, on Vrangel Bay 65 miles east of
Vladivostok. The Japanese firms are providing $80 million
in engineering services, equipment for port facilities, and
construction equipment. Soviet purchases are being financed
by long-term Japanese Exirbank credits. When completed
possibly by 1975 -- the port will be the largest in the Soviet
Far East. The coal and wood chip handling facilities under
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construction at the port should be fully employed in handling
exports resulting from Soviet-Japanese resource projects. A
large modern container facility also has been built to support
the recently inauguzated Siberian "land-bridge" for Japanese-
European container traffic.
D. Metals
1. ' Aluminum Processing Facilities
The Soviets have expressed considerable interest in
obtaining foreign cooperation in producing goods requiring
large energy inputs since energy is plentiful in parts of
Siberia. In this connection, the USSR is negotiating with US
and French firms for developing its Siberian aluminum industry.
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Other Metals
The USSR recently signed a $300 million contract for
Finnish smelting equipment for a major expansion of the
Norilsk copper-nickel combine. The USSR has negotiated for
nearly a decade with Western firs over the development of the
rich Udokan copper deposits east of Lake Baykal. Western
investment has been deterred in part by the lack of rail
facilities and other supporting facilities in that remote area.
Construction of the new Trans-Siberian railroad, however, should
spur interest in Cdokan copper as well as other resources in
that area. Soviet officials have announced that other mineral
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deposits being readied for development include copper and
nickel deposits at Nizhneargarsk and polymetalic deposits of
lead, zinc, fluorite, and various rare metals at unspecified
locations. The new railroad will also provide access to large
.Soviet iron ore deposits in East Siberia.
CIA/OER
4 Nov 74
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