Foreign Relations of the United States, 1981–1988, Volume X, Eastern Europe

418. Intelligence Research Report Prepared in the Bureau of Intelligence and Research¹

No. 118

Washington, September 11, 1987

(U) Prague Charts a Cautious Reform Course

Key Judgments

Although both Moscow and Prague endorse the idea of “separate paths to socialist development,” the Husak government has, in fact, embarked slowly and reluctantly on a cautious reform course, patterned in many ways after Soviet perestroyka (restructuring). The regime, one of the most conservative in the Eastern bloc, resisted change after the 1968 Prague Spring for fear of the potentially destabilizing consequences. As Soviet perestroyka has gained momentum, however, particularly after the January and June Communist Party of the Soviet Union (CPSU) plenums, Prague apparently has found it prudent to launch its own version of “restructuring.”

President Gustav Husak’s strategy seems to call for partial and incremental emulation of Soviet perestroyka in the economic sphere, but much greater reserve with respect to social and cultural liberalization. Only small steps toward actually implementing reform have been taken so far, Prague having devoted most of its efforts to preparing the legal and organizational groundwork for more extensive changes at some later date. By leaving many aspects of its plans vague, the regime has preserved sufficient flexibility to adjust the pace of change should Moscow demand more or serious problems develop.

Even this cautious approach has, however, occasioned significant disputes between orthodox and moderate party leaders, which surfaced in a public debate between hardliner Vasil Bilak and the more flexible Prime Minister Lubomir Strougal early this year. Nevertheless, the regime apparently succeeded in thrashing out a tenuous consensus before the March plenum, and was able to present a reasonably united front during Soviet Leader Mikhail Gorbachev’s visit in early April. Czechoslovak hardliners have now dampened their antireform rhetoric, but still exercise potent veto power and can be counted on to keep the course of change slow. Husak himself shows no sign of quitting despite his 74 years. Thus the outlook is for more Czechoslovak gradualism.

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Prague Starts Talking About Its Problems. Responding to Moscow’s burgeoning glasnost campaign in the summer of 1986, Prague launched its own version of “openness,” with economic inefficiency its chief target. Official pronouncements on economic matters slowly shifted from the self-congratulatory themes dominant throughout the 17th party congress of the previous March, toward a perceptibly more critical approach. The vague critiques of economic problems which Prague previously favored gave way to increasingly specific, open, and sometimes harsh attacks on shortcomings of economic management.

Among the first glimmers of this new approach was an unusually critical evaluation of economic results for the first half of 1986, published in July. Despite the fairly respectable 3.2 percent growth rate for national income overall, the half-year report focused on failures to meet “qualitative indicators,” i.e., efficient use of energy and raw materials, timely fulfillment of contracts, technological innovation, and the like.

At some point during the summer or fall, the regime apparently decided to begin constructing a general plan for more thoroughgoing change than it had earlier endorsed at the conservative 17th party congress. In early November, Prague sources noted that a so-called “wise men’s report” was circulating among senior officials. Economic Secretary Milos Jakes (rumored to be in line to succeed Husak) reportedly had discussed the contents of this document with Gorbachev in Moscow during October. A US Embassy source alleged that the report had originally contained some far-reaching provisions concerning enterprise autonomy, self-financing, and price reform, but that conservatives succeeded in diluting them in the final version.

A Modest and Vague Program of Action Unveiled. In the end, when the party Central Committee plenum met December 4–5 it endorsed only mild and incrementalist measures which copied some aspects of Soviet economic reforms initiated earlier. Eschewing Gorbachev’s rhetoric of radical reform, the plenum paid only minimal respects to Gorbachev-style “democracy” and cadre reform. Nevertheless, Husak (who, in an unusual departure for him, personally delivered the plenum report) let the party faithful know that henceforth, Moscow would expect at least minimal changes.

Husak revealed that the party presidium (Politburo) and government were fashioning a comprehensive reform package designed to harmonize the Czechoslovak domestic economy with “the measures taken in the Soviet Union.” In the area of foreign trade, he explained that the impending expansion of direct Czechoslovak-Soviet enterprise links (formalized by prime ministers Strougal and Nikolay Ryzhkov at the Bucharest conference of the Council for Mututal Economic Assistance [CEMA]) would require increased autonomy for the affected domestic firms.² Meanwhile, an experimental program which would give selected enterprises enhanced decisionmaking powers would begin on January 1.

The First Tentative Moves. Following the plenum, the regime took a series of steps to bolster the credibility of its commitment to gradual restructuring. In late December it announced the imminent establishment of “People’s Control Committees” to enforce quality control standards in enterprises, especially those involved in foreign trade. The committees, modeled after the Soviet gospryem system and reportedly advocated by Jakes, were to operate independently of enterprise management and authorized to take “uncompromising” disciplinary action.

On January 9, Prague unveiled its blueprint for reform, the “principles of economic restructuring,” which included provisions for limited decentralization, more financial incentives, and closer linkages of prices with real costs. Husak described the principles as only a general outline of prospective changes, to be fleshed out in a more comprehensive document in the course of 1987.

The regime also designated two small firms producing jewelry and crystal to begin participating in an experiment in enterprise autonomy, which was gradually to encompass a modest total of 20 other enterprises by the end of the year. On January 13, the Foreign Trade Ministry unveiled a series of proposals reducing central control of individual foreign trade transactions. Several of the country’s largest firms were thereby authorized to conduct direct foreign trade relations, though here, too, the enterprises received less autonomy than was delegated to their Soviet counterparts.

Factional Discord Breaks Into the Open. Emboldened by the growing momentum of Gorbachev’s reform program, Prague moderates stepped forward to probe the limits of Czechoslovak reform. Speaking at a January 27 economic conference (the same day that Gorbachev delivered his plenum address), Prime Minister Strougal stressed the “urgent” necessity of economic reform in Czechoslovakia. He went on to attack entrenched dogmatism at all administrative levels for delaying the pace of restructuring the economy. In a significant departure, Strougal even attempted a cautious reappraisal of the 1968 reform movement, differentiating between “valuable” and “antisocialist” aspects of that experience.

Regime hardliner Bilak evidently interpreted Strougal’s remarks as a threat to the regime’s legitimacy; he warned in a February 10 speech against “rightwing” forces who “feed on Soviet changes” and seek to revise the “lessons” of 1968. Bilak, who had tolerated reluctantly the modest reform program espoused by his party’s December plenum, apparently felt it necessary to register opposition to the kind of social liberalization Moscow and Strougal were contemplating. Local security forces backed up his words a week later by preventing dissidents belonging to the Charter 77 group from meeting members of the US delegation to the Conference on Security and Cooperation in Europe (CSCE)—contrary to Foreign Ministry assurances during Deputy Secretary of State John C. Whitehead’s visit³ a short time before.

Reacting to widespread Western press reports of serious differences between Prague and Moscow, in part occasioned by the Strougal-Bilak row, the regime publicly endorsed Gorbachev’s January plenum speech setting out his perestroyka proposals, but claimed the country would follow its own path of economic reform. The Czechoslovak ambassador to Bonn took the unusual step of calling a press conference February 16 to assert his government’s full support of Gorbachev’s reform course as well as its right to “creative” implementation of its own program. He claimed that Bilak had merely been highlighting the lessons of 1968.

Moscow’s Signals. The Soviets refrained from commenting on Bilak’s remarks, though indirectly they signaled clear support for the more liberal Czechoslovak faction. Foreign Minister Shevardnadze, visiting Prague February 4–5, virtually snubbed Bilak. Pravda did publish a version of Bilak’s comments, but subsequently printed a series of articles by Czechoslovak officials, including one by Jakes endorsing Gorbachev’s programs.

During February and March, Moscow dispatched an unusually large number of emissaries to Prague, including Shevardnadze, then-Defense Minister Sergey Sokolov, and Politburo member Lev Zaykov (who has broad economic responsibilities). Although official press reports specified that the visits dealt with the details of the CPSU January plenum, the level of the visitors suggested Moscow wanted a firsthand assessment of Prague’s intentions regarding perestroyka and was providing a high-powered readout of its own plans.

Zaykov was the most pointed in noting problems, indicating in a March 5 interview that unspecified measures remained to be taken to assure the success of Gorbachev’s expected visit to Prague. In another interview, he criticized Prague’s slow implementation of joint ventures with Moscow. Evidently in response, Czechoslovakia hosted two Soviet delegations later that month to discuss establishment of direct enterprise links.

The March Plenum. Less than three weeks before Gorbachev’s arrival in Czechoslovakia, the regime held its March 18–19 plenum. The gathering noisily endorsed the CPSU January plenum in an apparent effort to dispel the impression of internal disunity about reform. Husak emphasized the importance of party unity and described reports of serious rifts as fabrications of “hostile foreign propaganda.” As if to underscore Husak’s words, Bilak dropped his warnings about reforms and publicly embraced restructuring.

The Czechoslovak March plenum dropped the ailing Josef Korcak, a Presidium member, and replaced him with his deputy, Ladislav Adamec, reputedly a strong proponent of economic efficiency. The former Czechoslovak ambassador to Moscow, Miroslav Zavadil, and the hardliner Karel Hoffmann, head of the trade union movement, were named new party secretaries. The moves represented a dramatic shift for Prague; it had avoided party leadership changes at the Presidium and Secretariat level since 1971, fearing to upset the delicate equilibrium established since “normalization.”

Cadre Shifts. Strougal, frustrated by the slow pace of Husak’s reform, had taken up the theme of cadre changes in speeches to party audiences before the plenum. Husak himself appropriated some of Strougal’s language, calling for improved training of economic managers in his plenum speech. He further warned that some party members would fail to meet the new standards. The plenum’s resolution was even more explicit: It singled out economic efficiency as the “fundamental criterion” for party members.

Earlier in the month, the party daily Rude Pravo had announced that the party control and auditing commission would be reviewing, ahead of schedule, the work of selected party organizations. A representative of the commission told Rude Pravo that the review would help uncover the reasons that restructuring had not progressed at the desired rate. The review process evidently was devised by the reform-minded as a way to prod conservative elements. The prospect of personnel change at the enterprise level apparently was intended to lend further credibility to the reform program and delay any need for major leadership shifts.

Husak, however, revealed the depth of Czechoslovak anxiety when he disclosed that the Presidium had devoted two sessions in February to studying how to adapt to the “impulses” of the January CPSU plenum. He warned the plenum that a great deal of hard work remained before them in implementing Prague’s gradual reform agenda.

Husak even told the plenum that the party should consider secret balloting for senior positions and election of factory managers by workers. As if to demonstrate the sincerity of his words, the leadership of the trade union movement thereupon elected former ambassador Zavadil its chairman by secret ballot.

The removal of Zavadil’s predecessor, Karel Hoffmann, may have been engineered as a show of Prague’s intention to revitalize the dormant trade unions. Hoffmann’s departure came amid persistent criticism of the unions’ performance. It followed closely his speech at the Soviet trade unions’ congress in which he repeated Bilak’s standard cautions about the pitfalls of reform. In any event, the unions’ March 19 central council meeting bluntly noted that the efficiency of the national economy had not improved significantly in 1986, and that the trade unions were partly to blame. The leadership then removed Hoffmann.

But there are indications that the hardliners are still influential on policy questions. Although Hoffmann lost his trade union position, his immediate accession to party secretary (coupled with his continued Presidium membership) meant that he retained his veto power over Zavadil. In addition, despite Strougal’s and other senior officials’ promises of greater trade union democracy and worker participation in management, concrete signs of progress have been scarce since Zavadil’s election.

Gorbachev Pays a Visit. Gorbachev’s expected arrival in Prague in early April 1987 prompted considerable speculation about the state of bilateral relations, Husak’s political future, and Moscow’s attitudes toward East European reform in general. A last-minute postponement of the visit by a few days attributed by the Soviets to the General Secretary’s cold, was widely reported by the hundreds of foreign journalists assembled for the event and heightened expectations even further.

When Gorbachev finally came, his numerous public appearances occasionally produced spontaneous shows of popular enthusiasm for reform, the intensity of which apparently surprised Husak. Nevertheless, Gorbachev pleased his hosts (and disappointed some dissidents) by avoiding direct criticism of Husak and refraining from publicly siding with the moderate party faction.

In a major declaration on Moscow’s new policy toward reform in the bloc April 10, Gorbachev simultaneously endorsed the notion of separate paths to socialism and stressed the “objective” necessity of perestroyka. His message generally seemed to be that Moscow desired reform, but that each bloc party would determine the pace and extent of change for itself.

But the Soviet chief also called for more bilateral economic cooperation, particularly in the form of direct enterprise links. He referred approvingly to a number of agreements recently signed by Moscow and Prague which established direct ties between several research and production units and envisaged more to come.

During several meetings with Czechoslovak workers, the Soviet leader also addressed the 1968 Soviet intervention and added a few interesting nuances. Although he described the Prague Spring’s “deviations” from socialism in orthodox terms, he avoided the standard references to “fraternal assistance” and singled out stagnation in the Czechoslovak party during the 1960s as responsible for the crisis. (Similarly, Gorbachev noted, in discussing his own country’s perestroyka in his April 10 speech, that stagnation during the 1970s necessitated the present Soviet reform course.)

The Aftermath of the Visit. Although Gorbachev avoided overt gestures that could undermine Husak’s authority and, by extension, stability in Czechoslovakia, he may have expressed some dissatisfaction with the lethargic progress of local reform in private meetings with the leadership. In any case, the regime noticeably quickened efforts to solve its economic problems in the months following the visit.

Official pronouncements since then have propelled perestroyka to the forefront of public debate. Regime moderates have been more in evidence than hardliners and are attacking “formalism,” “outdated attitudes,” and “indolence.” Their criticism has been accompanied by continuing blunt warnings to unresponsive officials who purportedly do not appreciate the urgency of restructuring.

Adamec, the newly appointed Presidium member and premier of the Czech Republic, has been particularly outspoken in calling attention to these problems. The Czech government denounced plan fulfillment results on April 28 and ominously noted the “personal responsibility of government members” for the difficulties. On May 8, the Adamec administration sacked three republic ministers responsible for science and technology, education, and construction.

During April, Czech republic authorities dispatched teams of experts to investigate the causes of lagging production and poor quality control. The Czech republic also announced it was sending out new guidelines to local officials to cut back on the volume of regulations and written instructions governing local administration. An ad hoc commission was widely expected to reduce the number of regulations by 50 percent.

The federal government, for its part, acted quickly to establish additional direct links between Czechoslovak and Soviet firms, announcing agreement on a joint venture involving two major industrial firms, Skoda and Uralmash. Prague claimed on April 22 that eight joint ventures were under discussion and that more than 100 enterprises on both sides had established direct scientific-technical cooperation links.

Also in April, Prague’s experiment in enterprise autonomy inched forward with five additional firms joining the two already operating under new guidelines. These enterprises were mainly smaller, export-oriented producers of consumer goods, but in July they were joined by 10 other firms, some of which employed considerably more workers.

Developing Western Contacts. The Husak government has departed from past practice by seeking expanded Western economic contacts to help modernize its aging industrial base. With the backing of other bloc countries, the regime is promoting the idea of a CSCE economic forum in Prague to advance East-West economic cooperation. Furthermore, the government recently concluded preliminary talks with the European Community aimed at a bilateral trade agreement.

Prague seems to have made a conscious decision to tolerate moderate growth in imports of machinery and electronics from the West for capital investment despite its declining hard currency exports. It can afford to pursue such an approach for now, given its low net indebtedness in hard currency (approximately $3 billion) and debt-service ratio (less than 20 percent). In the early part of 1987, Czechoslovakia obtained a $200 million loan from Western banks, continuing a trend begun last year with Prague’s cautious return to Western financial markets.

On April 14 Prague signed a joint venture with Philips to manufacture video recorders, its second with a Western company. Federal Republic of Germany interest in joint ventures emerged during the late July visit of Lothar Spaeth, the minister-president of Baden-Wuerttemberg. Spaeth promised to locate five or six FRG firms which would negotiate with Prague on joint ventures.

In recent meetings with the FRG’s Foreign Minister Genscher and the Austrian Prime Minister, the Czechoslovaks signaled an interest in easing border crossing formalities and encouraging tourism, which remains a less developed part of the economy than in other bloc countries. (Czechoslovakia last year hosted about 250,000 tourists from neighboring Austria, for example; Hungary attracted over 2 million in the same period.) The May 20 Presidium session discussed procedures for developing this sector and possible joint ventures with Western firms in providing tourist accommodations.

The June Booster Shot. Gorbachev’s success in pushing through his restructuring initiatives during the June CPSU plenum apparently convinced Prague that perestroyka was here to stay. The regime introduced its own draft law on enterprises in July and publicized other economic initiatives. It has since revealed that at least 12 new laws and various other regulations related to perestroyka are now in preparation, although much of the legislation will not be complete before 1990. The draft enterprise law, which concedes central authorities more power and party officials a greater voice in management than does the Soviet law, was presented for three months of public debate and will come into force in 1989. Wholesale prices are scheduled for “reconstruction” the same year.

The authorities also unveiled some new plans for concrete changes in the near term. By next January 1, managers of the country’s hotels and restaurants are to receive expanded autonomy and will operate under self-financing principles. Prague accompanied this announcement with the warning that money-losing catering establishments should not count on further subsidies. At the same time, a small number of private shops and restaurants will open for business in rural areas where state-run service enterprises are least developed.

Concurrently, it appears that the regime may have expanded its experiment in economic decentralization ahead of schedule. Candidate Presidium member Josef Haman disclosed to a regional party conference in early August that 370,000 people were already working in enterprises participating in the experiment, a number which exceeds the total employment of the firms previously listed as participants. Should the new regimen be extended to restaurant and hotel enterprises as planned, between 10 and 20 percent of the labor force could soon be subject to decentralized management.

The efficiency and anticorruption campaign meanwhile has been strengthened. A Bratislava court recently convicted a number of local Slovak officials involved in one of the country’s largest corruption scandals, in a trial noted for its unusual public access. In northern Bohemia, the regional party organization reviewed the membership of 43,000 cadres and dismissed 2,776 for substandard performance. Prague city authorities fired six enterprise directors for “failure to fulfill economic tasks.” Teams from the People’s Control Committee have also begun work in 10 Slovak enterprises noted for poor quality production. As a result, the quality control staff in the enterprises has been deprived of bonuses and other benefits.

Prague’s Erratic Policy Toward Dissent. Despite these cautious moves toward economic liberalization, official treatment of dissent has not yet shown a parallel improvement, though there have been some encouraging signs. In recent years the regime generally had eased off on some of its worst excesses against dissidents. But in March, Prague decided to proceed with its largest dissident trial since 1979, an event which attracted much unwelcome international attention. Although all the defendants received guilty verdicts, officials did try to placate Western opinion by giving journalists unprecedented access to the trial, tolerating demonstrations of support by sympathizers, and handing down relatively short sentences.

More confusion about the regime’s position on dissent has been reflected in recent contradictory behavior by security officials. In the past few months, dissidents report an appreciable softening in police treatment of regime critics, though surveillance and official interrogations continue. Police reportedly have even offered to care for children during a parent’s interrogation, or praised portions of samizdat articles. Nevertheless, low-level harassment has not ceased, and church sources report no appreciable easing of religious persecution.

1. Source: Reagan Library, Rudolf Perina Files, Czechoslovakia—Bilateral 1987 (2). Confidential. Drafted by Algis Avizienis; approved by Richard Clarke. All brackets are in the original.
2. November 3–5, 1986.
3. See Documents 411–416.