Critics Slam Economic Reform Plan

Government's credibility is on the line, as both conservatives and radicals demand revisions

MIKHAIL GORBACHEV is back in town and the first order of business is to save his government's much-assailed economic reform plan. The widespread view here is that Mr. Gorbachev's ability to stay in power will depend in large part on his ability to gain support for the controversial program for a transition to a ``regulated market economy.''

Gorbachev is scheduled to address the Soviet parliament next Tuesday, his first major public statement since his return from the United States. The speech will probably be followed quickly by a vote on his economic design.

This weekend, according to press reports, a special meeting of the Communist Party Central Committee will be convened. According to Interfax news agency, the meeting may take up a new version of the plan, responding in some way to the barrage of public criticism it has received.

The plan, unveiled two weeks ago after months of discussion within the government, has been hit from both sides of the Soviet political spectrum.

Party conservatives have attacked the government for failing to protect workers and the poor from the fallout of inflation and unemployment expected to accompany the shift to a market economy. Much of their fire is aimed at plans to double and treble the long-subsidized prices for basic goods such as bread.

The radicals on the left, including many leading economists, charge the government with indecisiveness, with failing clearly to establish a market structure. Instead, they argue, the government has compromised with the right, creating what economist Oleg Bogomolov calls an unworkable ``hybrid of a command economy and a quasi-market.''

The reaction has forced the government to back away from an earlier promise to hold a referendum on the program and to resign if it lost.

The reform plan, by the government's own account, would have been far easier to put across two or three years ago when Gorbachev enjoyed great popularity and could blame the inevitable pain of transition on the problems left by the previous Soviet regime. But after five years in power, marked by a zigzag path of reform and retreat, the government's credibility has worn thin.

More for political than economic reasons, the Gorbachev government rejected the advice of more-radical economists to follow the path of Poland's ``shock therapy.'' In one stroke, the Poles freed all prices from state control, ended subsidies of state-run industries, and began privatizing those government assets. The popularly elected Polish Solidarity government imposed a wage freeze, despite the higher prices and unemployment that have come with the program.

``If we embarked on the Polish way ... we wouldn't be able to ride it out for even half a year,'' Deputy Prime Minister Leonid Abalkin, the architect of the reform strategy, frankly admitted in an interview with Commersant, an independent Soviet economic weekly.

Instead the government, six months after putting forward an even more timid plan, proposes a gradual transition to market conditions. The three-stage, decade-long reform begins in 1991 (moved up two years from the earlier version). The government is first revising prices upward, to reflect the actual costs of production and to curb an estimated $160 billion in annual subsidies for food and some consumer goods.

The government has tried to soften this blow by pairing it with a complex plan to compensate citizens with salary increases and other payments.

``People see only prices going up,'' comments Rair Simonyan, a senior economist at Imemo, an influential government think tank. ``They don't believe in compensation.''

In this economist's view, the government erred in beginning price reform before it had first created real market conditions, where enterprises, including private ones, can freely find labor, materials, and financing. Without those conditions, which under the plan will not be fully in place until 1995, he sees no way for producers to respond to the incentive of higher prices.

Economist Otto Latsis expresses another view shared by many economists: that the ``shock'' is unavoidable, so it is best to free prices completely, thus bringing positive results more quickly.

``In the Soviet Union,'' he said in a recent interview, ``we have always emphasized the negative consequences of shock therapy: soaring prices, unemployment, and inflation. But we miss one point. Indeed, prices will grow, but simultaneously the market will be filled with goods.''

Such critics say the government is simply repeating the error of the Communist Polish government of two years ago, which opted for a similarly gradual approach, only to find itself in a crisis that brought the popular Solidarity government to power.

What makes this the most difficult moment to attempt change, however, is the unavoidable fact that the Soviet Union has slid into the first phase of a deep and classical economic recession. According to Planecon Report, an authoritative Washington newsletter, Soviet growth is now negative and may drop by 4 percent to 5 percent this year. Inflation reached 11 percent by the end of last year, reports Commersant, and it may double this year. The Soviet Union is running its first trade deficit in 14 years.

The Soviet consumer sees the crisis most vividly in the form of severe, across-the-board shortages. In an economy where shortage and hoarding are the norm, the past year has seen a noticeable deterioration. Out of 1,100 groups of commodities defined by the government, 95 percent are in short supply, according to Mr. Latsis, an editor of Kommunist, the theoretical journal of the Communist Party.

The final element of the crisis is a massive and growing government budget deficit, which went from 48 billion rubles in 1986 to 92 billion last year. The deficit is supposed to come down to 60 billion this year but the democratically elected Soviet parliament has resisted such cuts.

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