TEXT:*EUR510   07/15/94


(CIA sees mixed outlook for Russian economy) (610)

By David Pitts

USIA Staff Writer

Washington -- The agreement Ukraine made to remove nuclear weapons from its

territory "is generally on track," John McLaughlin, the director of Slavic

and Eurasian Analysis at the CIA (Central Intelligence Agency), said July


Testifying before the Joint Economic Committee of Congress, McLaughlin said

Leonid Kuchma, who won the recent presidential election, "feels that

Ukraine has not been sufficiently compensated" for the agreement, but "he

has said he will maintain the agreement."

1n the economic situation in Ukraine, McLaughlin said the country lags "far

behind Russia in economic reforms to date."  He said that both Ukraine and

Belarus "have made limited progress in liberalizing prices, output, and

domestic trade, and both have proceeded slowly with the privatization of

small firms."

The bulk of his testimony concerned Russia.  McLaughlin said that Russia

"has made enormous economic progress in the two and a half years since the

breakup of the Soviet Union."  But he also said, "The goals of a thriving

market economy and Western levels of material prosperity for Russian

citizens remain a long way off."

"In material terms, Russian living standards have roughly stabilized, but

remain substantially below 1990 levels," McLaughlin remarked.  "Moreover,

rampant crime and corruption have emerged as key factors in Russia's

attempt to reform its political and economic institutions," he added.

In terms of the road ahead, McLaughlin said, "Russia continues to face the

choice between high inflation and rising unemployment."  He said the pain

of more unemployment "cannot be put off indefinitely."  In the longer term,

he said "much work remains to be done in developing the legal and

regulatory base for a market economy."

William Grundmann, director for Combat Support at the Defense Intelligence

Agency (DIA), spoke about Russia's military and security policy.  He said,

"Russia's evolving interpretation of its national interests is increasingly

leading it to more assertive foreign policy and security goals."  It

particularly sees the near-abroad as part of its "sphere of influence," he


Russian-Ukrainian relations "remain strained" over the Crimea and the

continuing dispute over the status of the Black Sea Fleet, Grundmann


Noting the step Russia took in joining the Partnership for Peace, Grundmann

pointed out that there are "still major factions in the military and

political leadership who view the Partnership program with suspicion,

describing it as an attempt to impose a NATO-dominated security system that

denigrates Russia's great power status."

The size of Russia's military continues to decline.  Grundmann said "from

about 2.8 million in early 1992, authorized strengths have fallen now to

slightly more than two million.  President Yeltsin affirmed a 1.5 million

goal for restructuring last month."  Defense outlays in 1993 were "less

than 30 percent of peak Soviet levels in the late 1980s," he added.

John Gannon, a CIA specialist on Eastern Europe, said that the economic

situation "is steadily improving across the region."  Eastern European

countries "are generally staying the reform course," despite the victories

of the left in some recent elections.  "Reforms have largely become

irreversible," he added.

The Polish economy grew at a rate of four percent last year, Gannon noted.

Whereas output either fell or stagnated elsewhere, it was on the rise by

the end of last year, he added.  The economies are "likely to show

continued steady improvement in 1994," he noted.

On the downside, however, Gannon, said that output is still "below

pre-reform levels" and inflation and unemployment is still in the double