Soviet Economic Dilemmas

February 19, 1982

Report Outline
Guns vs. Butter in 1980s
Priorities Since 1917
Prospects for Reform
Special Focus

Guns vs. Butter in 1980s

Economic Problems at Home and Abroad

Recent events, including the crisis in Poland, a succession of poor harvests in the U.S.S.R., and the shakiness and interdependence of world financial institutions, have focused attention on the Soviet economy. It is widely acknowledged, even by Russian leaders, that the performance of that economy leaves much to be desired. How bad the Soviet economy really is and what measures the Russians might take to improve it, or adversaries might impose to punish the Kremlin, are subjects of controversy.

What is certain is that the situation in Poland has compounded Soviet economic woes. To keep its Eastern European satellite afloat, Moscow has poured billions of dollars into Poland in the past year. Exactly how much the Russians have expended in subsidies, loans, grants and repayment of Poland's huge debt is difficult to ascertain. The sanctions President Reagan imposed on Poland and the Soviet Union after the Dec. 13, 1981, declaration of martial law in Poland and the silencing of the Polish trade union Solidarity are, to date, largely symbolic. “The Soviet Union,” Reagan declared when he imposed those sanctions on Dec. 29, “bears a heavy and direct responsibility for the repression in Poland.”

Other than a recent agreement among NATO countries not to reschedule payments of Poland's debt to Western governments and banks this year, the allies, except for Britain, have issued only verbal criticism or condemnation of Soviet complicity in Poland. But if the situation in Poland deteriorates or, less likely, the Russians invade, sanctions against the Soviet Union might cost Moscow dearly. President Reagan would be pressured to reimpose the grain embargo decreed by President Carter after the Soviet invasion of Afghanistan in December 1979 and lifted by Reagan in April 1981. Western Europe, which has far more trade with the Soviet bloc (see box, p. 135), might be less likely to sell what Washington has embargoed and might curtail sales of high-technology items, particularly equipment for the natural gas pipeline from Siberia to Western Europe (see p. 131). Most serious of all, Western banks and governments could declare Poland in default on its more than $20 billion debt to the West and perhaps force the Soviet Union to assume responsibility for it.

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