Global economic and technological change : Japan and the Asia-Pacific region : hearing before the Subcommittee on Economic Goals and International Policy of the Joint Economic Committee, Congress of the United States, One Hundred Second Congress, second s

220 Pages·1993·6.9 MB·English

by  United States. Congress. Joint Economic Committee. Subcommittee on Economic Goals and Intergovernmental Policy

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G__E_ Ob|_A.L. Economic anS.dHrg. 102-586.Pt.2
I
lOLQGICAL CHANGE:
APR '^t1_
roRMER SSOOVVIIEETT UUNNIIOONN AND
n Al
ERN EUROPE, AND
HAMPDEN LAW UBRARV iHINA
HEARING
BEFORETHE
SUBCOMMITTEE ON TECHNOLOGY AND
NATIONAL SECURITY
OFTHE
JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
ONE HUNDRED SECOND CONGRESS
SECONDSESSION
PART2
JUNE8ANDJULY27, 1992
PrintedfortheuseoftheJointEconomicCommittee
mh
Boston, 02116
GLOBAL ECONOMIC ANS.DHrg. 102-586,Pt.2
TECHNOLOGICAL CHANGE:
FORMER SOVIET UNION AND
EASTERN EUROPE, AND
CHINA
HEARING
BEFORETHE
SUBCOMMITTEE ON TECHNOLOGY AND
NATIONAL SECURITY
OFTHE
JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
ONE HUNDRED SECOND CONGRESS
SECOND SESSION
PART2
JUNE8ANDJULY27, 1992
PrintedfortheuseoftheJointEconomicCommittee
U.S.GOVERNMENTPRINTINGOFHCE
WASHINGTON: 1993
ForsalebytheU.S.GovernmentPrintingOffice
SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402
ISBN 0-16-040114-3
JOINT ECONOMIC COMMITTEE
[Created pursuanttoSec. 5(a)ofPublic Law 304, 79thCongress]
SENATE HOUSEOFREPRESENTATIVES
PAULS. SARBANES. Maryland. LEEH. HAMILTTON, Indiana,
Chairman ViceChairman
LLOYD BENTSEN, Texas DAVIDR. OBEY. Wisconsin
EDWARD M. KENNEDY. Massachusetts JAMES H. SCHEUER, New York
JEFF BINGAMAN, New Mexico FORTNEY PETE STARK, California
ALBERTGORE,Jr.,Tennessee STEPHENJ. SOLARZ, New York
RICHARD H. BRYAN, Nevada KWEISI MFUME. Maryland
WILLIAM V. ROTH.Jr., Delaware RICHARDK. ARMEY,Texas
STEVE SYMMS. Idaho CHALMERS P. WYLIE, Ohio
CONNIE MACK. Florida OLYMPIAJ. SNOWE. Maine
ROBERTC. SMITH, New Hampshire HAMILTON FISH,Jr., New York
STEPHEN A. QUICK. ExecutiveDirector
RICHARDFKAUFMAN,GeneralCounsel
EDWARDW. GILLESPIE.MinorityStaffDirector
SUBCOMMITTEE ON TECHNOLOGY AND NATIONAL SECURITY
SENATE HOUSEOFREPRESENTATIVES
JEFFBINGAMAN, New Mexico DAVIDR. OBEY.Wisconsin
Chairman JAMES H. SCHEUER, New York
PAULS. SARBANES. Maryland KWEISI MFUME. Maryland
RICHARD BRYAN. Nevada RICHARD K. ARMEY.Texas
CONNIE MACK, Florida
ROBERTC. SMITH. New Hampshire
(ii)
CONTENTS
WITNESSES, STATEMENTS, ANDSUBMISSIONS
FORTHERECORD
Monday,June8, 1992
PAGE
Bingaman,Hon. Jeff,ChairmanoftheSubcommitteeonTechnologicaland
National Security,JointEconomicCommittee: OpeningStatement 1
ReportsbytheCentralIntelligenceAgencyandtheDefenseIntelligenceAgency
entitled:
"TheNewRussianRevolution: TheTransitiontoMarketsintheOther
CommonwealthStates" 3
"EasternEurope: StrugglingtoStayontheReformTrack" 41
McLaughlin,John,DirectoroftheOfficeofSlavicandEurasianAnalysis,
CentralIntelligenceAgency 93
Preparedstatement 100
Horste,Kathleen, SpecialAssistantforRussia/Eurasia,DefenseIntelligence
Agency 106
Preparedstatement Ill
Monday,July27, 1992
Bingaman,Hon. Jeff,ChairmanoftheSubcommitteeonTechnologicaland
National Security,JointEconomicCommittee: OpeningStatement 129
Petersen,Martin,DeputyDirector,OfficeofEastAsiananalysis.Central
IntelligenceAgency 130
Preparedstatement 137
Reportentitled "TheChineseEconomyin 1991 and 1992: Pressureto
VisitReformMounts 143
(iii)

ECONOMIES OF THE FORMER SOVIET UNION
AND EASTERN EUROPE
MONDAY,JUNE 8, 1992
CongressoftheUnitedStates,
Subcommittee onTechnologyandNationalSecurity
OFtheJointEconomicCommittee,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:05 p.m., in room
SE)-628, Dirksen Senate Office Building, Honorable Jeff Bingaman
(chairman ofthe Subcommittee) presiding.
Present: Senator Bingaman.
Also present: Richard F Kaufman, General Counsel.
OPENING STATEMENTOFJEFF BINGAMAN, CHAIRMAN
SenatorBingaman. The Subcommittee hearingwill come to order.
The hearing marks an historical watershed in several respects.
Today, we're receiving the last reports of the Central Intelligence
Agency and the Defense Intelligence Agency on the Soviet Union, and
their first on Russia and the otherrepublics ofthe former Soviet Union.
As everyone is aware, the Soviet Union was dissolved as a political
entity in December of last year and the republics that made up the
USSR reformed themselves as independent, sovereign republics. The
reports that we receive today will review economic performance and
defense spending and related activities in 1991, which was the last year
ofthe USSR's existence.
The intelligence agencies will also report on what has occurred in the
republics thus far in 1992, the first year of their existence since the
breakup ofthe Soviet Union.
As I understand what's been delivered to us now, we have a CIA re-
port on the former Soviet Union. We have a CIA report on Eastern
Europe. And we have a CIA report on Moscow's defense spending cuts
accelerate. And then we also have a statement by the Defense Intelli-
gence Agency that covers that whole range ofissues, as I understand it.
In addition to having this broad range of issues reported on today,
this hearing will be done in open public session, which is a circum-
stance that was not possible duringthe long period ofthe Cold War.
The most remarkable thing about the hearing, however, concerns the
substance ofthe inquiry; namely, the shiftand transition from socialism
(1)
to market systems in the former Soviet Union and the former commu-
nist countries ofEast Europe.
It would be unfortunate ifwe took for granted the monumental im-
portance ofthese historic changes.
Russia and the other former socialist countries have decided to shift
to market systems and they have taken meaningful steps in that
direction.
There are obviously going to be difficulties and mistakes, but the
West and the United States, in particular, need to be helpftil ratherthan
hypercritical.
It is sometimes the case that we do not understand the value ofsome-
thing until it is lost. It could be a tragedy ofglobal proportions ifthe
West became too impatient in seeking rapid progress in the former
communist countries and too demanding in obtaining compliance with
conditions attached to economic aid.
Our witnesses this morning are: John McLaughlin, Director of the
CIA's Office of Slavic and Eurasian Analysis; John Gannon, Director
of the CIA's Office of European Analysis; and Kathleen Horste, the
Special Assistant for Russian and Eurasia in the Defense Intelligence
Agency.
Each will give an oral statement, following which we'll have some
questions.
[Reports presented to the Subcommittee by the Central Intelligence
Agency and the Defense Intelligence Agency follow:]
THENEWRUSSIAN REVOLUTION: THETRANSITIONTO MARKETS
IN THEOTHERCOMMONWEALTH STATES
ApaperpresentedbytheCentral IntelligenceAgencyandthe
DefenseIntelligenceAgencytotheJoint EconomicCommittee's
SubcommitteeonTechnologyandNational Security
(embargoeduntil 14008June 1992)
Summary
When the Soviet Union met its end in December 1991, more than six decades of
central planning had left its former member republics ill prepared forthe transition to
independent marketeconomies. Recognizingthefailureoftheold system, however, all
ofthe members ofthe new Commonwealth of Independent States (CIS) have intro-
ducedeconomicreformsthatwereatbestdistantdreamsonlyayearago.
ReformEfforts
While all oftheCIS stateshavemade someprogress in reformingtheireconomies,
Russia is clearly in the lead. In January 1992, Russia launched a comprehensive pro-
gram to introduce key elements ofamarketeconomy and stabilize fiscal and monetary
conditions. To date, Russiahas made considerable progress in liberalizingprices, rein-
ing in the budget deficit, and cuttinggovernment spending on investment and defense.
About 80 percentofwholesalepricesand percentofretail prices were freed on 2 Janu-
ary, and furtherprice liberalizationhasfollowed. Thegovernment'sclaimsaboutreduc-
ingthebudgetdeficitduringfirstquarterexaggerateitsaccomplishment, buteven when
adjusted to comply with international accounting practices, the budget demonstrated
substantial progresstoward fiscal restraint. In addition, Russian statements suggestthat
1992defensespendingwill fall sharply.
More recently, a political backlash against the sacrifices these measures have
entailed~most evident at the April meeting of the Russian Congress of People's
Deputies-haspromptedthegovernmenttoadjust its program~forexample, by relaxing
restraints on credit. Whilethe government hascontinued to move forward with painftil
measures such as sharp hikes in energy prices, continuing calls formajorreductions in
taxes, large increases in spending, and massive infusions ofcredit are increasing the
pressureontheleadershiptocompromise itsstabilizationprogram.
Muchworkremainstobedone, moreover, inprivatizingstateproperty, openingthe
domesticeconomytotheoutsideworld,anddevelopingmarket-oriented lawsand insti-
tutions. AccordingtoRussian statistics, fewerthan 1 percentofretail stores, publicdin-
ingfacilities, andconsumerserviceoutletshadbeen privatized by 1 Aprilthisyear, and
only about 2 percent ofagricultural land was in the hands ofprivate farmers. Many of
theoperatorsofprivatebusinessesarenotftill ownersinthesensethatownership isun-
derstood in most Western countriesand thereare important restrictions on the resale of
land. Reorientingtradewith therestoftheworldwill be alengthyprocess, even ifpar-
tial currency convertibility is achieved laterthis year as planned, and legal and institu-
tional development will take longer still. The financial system, in particular, remains
rudimentary;bankdeposits, forinstance, stillcannotbefreelyconvertedintocash.
The non-Russian members of the CIS also have made progress toward market
economies, but all ofthem lag considerably behind Russia. All ofthe other states, for
example, have followed Russia's lead in liberalizingwholesaleand retail prices, but al-
most all have left more extensive price controls in place. All ofthem also have made
lessprogressthan Russiain liberalizingforeigntradeand inenactinglegislationtosup-
portthetransitiontomarketeconomies.