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National Agenda: Soviet Union : Gorbachev Playing Beat the Clock on His Perestroika Reforms : * In two weeks, the Soviet leader must tell the West how he will transform the economy. At stake are billions of dollars and two competing blueprints.

July 02, 1991|MICHAEL PARKS | TIMES STAFF WRITER

MOSCOW — After three years of fierce debate and false starts, President Mikhail S. Gorbachev must, within the next two weeks, make some of his most crucial decisions: how to transform the Soviet Union's disintegrating, state-run economy so that market forces, entrepreneurship and private ownership predominate to bring the country real growth and prosperity.

The decision is daunting in its impact, and the deadline makes it more so, for not only is the fate of perestroika in the balance but the whole future of the nation.

"We are not talking about a better banking system or a plan to increase production, reduce inflation and eliminate the budget deficit or even a program of industrial development into the next century," Pavel Bunich, a leading Soviet economist, says. "We are talking about all that and more--matters of great complexity that nonetheless touch everyone's life.

"But there is even more, much more, to all this for we are deciding the nature of the economic system, and consequently of the political system, that we will have. The very character of the nation, the way that we act toward one another, the position we occupy in the world--all that will be decided this month."

The deadline stems from Gorbachev's scheduled meeting in London on July 17 with leaders of the Group of Seven major Western industrial countries. There he is to present his program for economic reform and seek assistance that, including grants, loans, trade credits and direct investment, might total anywhere from $15 billion to $30 billion a year.

The Background

The Soviet economy--state-owned, centrally planned and bureaucratically managed for seven decades--had begun to collapse long before Gorbachev came to power in 1985, and he quickly made its reform a central thrust of his policies.

The Soviet Communist Party decided in 1988, over conservative objections, to transform the country's economy with the introduction of free prices, private ownership of many enterprises, a greatly reduced role for the government and other measures that would make market forces the country's economic engine.

But the transition has been fitful and anguished as a result of political hesitancy, half-measures and plain mistakes. The rate of decline has, as a result, increased sharply. The Soviet economy is now shrinking at an annual rate of 11% to 15%, and inflation is running well over 100% a year. The government's total budget deficit is likely to be more than $400 billion this year. More than 90% of basic consumer goods are not regularly on sale any longer, and unemployment could grow to as much as 7 million by the year's end.

The Issues

While Gorbachev remains committed to the establishment of a free-market economy, a controversy is raging about the best way to achieve it--and to shape the new political structure that will follow.

Prime Minister Valentin S. Pavlov argues that the economic disintegration must be halted before further changes are attempted. The government's "anti-crisis program" is geared, first of all, to preserve and restore the linkages in the old, state-run economy; elimination of the budget deficit, liberalization of prices and convertibility of the Soviet ruble are key goals.

But Vladimir Shcherbakov, the new first deputy prime minister for economic reform, says the government program also includes step-by-step plans for the privatization of a substantial portion of state-owned enterprises, incentives for foreign investors and other measures that hasten the transition.

Overall, Pavlov and Shcherbakov reflect the ambivalence of most Soviet economists, who want the dynamism of the market but who believe that, with the lives of 290 million people at stake, all this must be carefully managed. The collapse of the Soviet Union's centrally planned economy has not persuaded them that such planning is fatally flawed--just that it was badly done.

Grigory Yavlinsky, a radical, pro-market economist, is urging Gorbachev to set much different priorities, emphasizing growth and change rather than stabilization; making private enterprise at home and integration into the world economy driving forces of the Soviet economy for the first time.

He accepts that there will be serious shortfalls in production, including food and consumer goods, and insists that it is better to use Western credits to make up the deficits than to reinstitute the old "administrative command system."

Yavlinsky's plan envisions extensive Western assistance--at least $15 billion a year over five years and perhaps twice that amount in some--in order to support the ruble as it is made convertible into other currencies, thus strengthening the whole economy.

Originally dubbed the "Grand Bargain," the plan was renamed the "Window of Opportunity" because of conservative assertions that it amounted to a sellout of Soviet interests to Western capitalists.

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