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164. Intelligence Report Prepared by the Central Intelligence Agency1

SR 76–10121U

Estimated Soviet Defense Spending in Rubles, 1970–1975

Key Judgments

NOTE: This report—the latest in a series of publications on Soviet ruble outlays for defense programs—presents a major revision of past estimates. Our new estimates incorporate an unusually large body of new information, much of which is still being evaluated. Therefore, the new estimates should be viewed as interim and subject to change as the work progresses.

Analysis of new evidence has resulted in a major upward revision in the estimate of the level and trend of Soviet ruble outlays for defense. The new estimate is about twice the previous estimate of total ruble spending for defense in 1975.

—We now estimate that Soviet spending for defense—as defined in US budgetary accounts—grew from about 40–45 billion rubles in 1970 to about 50–55 billion rubles in 1975, measured in constant 1970 prices.

—Under a broader definition—as the Soviets might account for their defense effort—we estimate defense spending at about 45–50 billion rubles for 1970 and about 55–60 billion rubles for 1975.

—Defense spending in rubles is now estimated to have increased at an average annual rate of 4–5 percent over the period rather than 3 percent as previously believed. During 1973–1975 it grew about 5–6 percent per year, reflecting largely the deployment phase of the new generation of strategic missile programs.

Several factors have contributed to the increase in our estimate of total spending for defense. About 90 percent of the increase results from changes in our understanding of ruble prices and costs. Changes in national intelligence estimates of the size of Soviet forces, and the ad[Page 760]dition of costs of some activities which previously were not included explicitly in our estimates—for example, preinduction military training and outlays for utilities—account for the remaining 10 percent of the increase.

The revised estimate of the ruble costs of Soviet defense has had a major effect on some important intelligence judgments, but not on others. Specifically, because the changes are largely the result of estimates of higher ruble prices rather than discovery of larger programs, the revised estimate:

—Does not affect our appraisal of the size or capabilities of Soviet military forces. Such estimates are based mainly on direct evidence.

—Does not have an important effect on our estimates of the dollar cost of reproducing Soviet defense programs in the US. We estimate the cost of reproducing 1975 Soviet defense programs in the US at about 114 billion dollars (1974 prices), some 40 percent higher than comparable US authorization in 1975.2

The new estimates do alter significantly our perceptions about the economic implications of Soviet defense programs:

—Since 1970, defense requirements have been absorbing some 11–13 percent of Soviet gross national product (GNP), depending on the definition of defense that is employed. Previously, we had estimated that defense took some 6–8 percent of GNP.

—The Soviet defense industries are far less efficient than formerly believed.

—The defense effort now takes about one-third of the annual output of the machinery sector of the Soviet economy.

Because the resource impact of the defense effort on the Soviet economy has been considerably greater than we previously recognized, we now realize that Soviet leaders have been more willing than we thought to forgo economic growth and consumer satisfaction in favor of military capabilities. Nevertheless, we see no evidence that economic considerations are deterring the Soviets from continuing the present pace and magnitude of their defense effort. Much work remains to be done, however, in assessing the implications of our new estimates for future Soviet policy decisions.

[Omitted here is the body of the report.]

  1. Source: Ford Library, Marsh Papers, Intelligence Subject File, Box 45, CIA—Mis-Estimate of Soviet Defense Spending. No classification marking. On May 18, Rumsfeld opened his Oval Office meeting with President Ford by discussing the CIA’s report. “Rumsfeld: The ruble expenditure paper comes out today. We have not interfered with the timing of it. What this tells us is that we underestimated their expenditure effort, overestimated their efficiency, and it makes no difference in their force strength.” According to the memorandum of conversation, “[s]ome discussion of pros and cons” followed. Rumsfeld then added, “I will have a backgrounder for the wires and nets just to put the right spin on it.” (Ibid., National Security Adviser, Memoranda of Conversations, Box 19, May 18, 1976—Ford, Kissinger, Rumsfeld) On May 19, the New York Times reported that while the CIA had doubled its previous estimate of Soviet defense spending, the new figures did not alter its estimate of actual Soviet military hardware. (“CIA Says It Has Underestimated Soviet Defense Cost,” New York Times, May 19, 1976, p. 4)
  2. An unclassified summary statement of our most recent dollar cost estimates appears in SR 76–10053, A Dollar Comparison of Soviet and US Defense Activities, 1965–1975, February 1976. [Footnote in the original. See Document 162.]