Soviet Economic Crisis Deepening : Restructuring: First-quarter statistics are dismal. Some economists doubt the country’s ability to recover.
MOSCOW — The Soviet Union’s economic crisis is deepening so rapidly that senior economists here are now expressing alarm about the country’s ability to recover, whatever strategy the government decides upon.
Assessing the decline in industrial production, the drop in gross national product and national income, an increase in inflation and the spread of strikes, the Communist Party newspaper Pravda said Sunday that the Soviet economy is running virtually out of control as it deteriorates day by day.
Despite concerted efforts to restructure the Soviet economy this year and last, production declined in most strategic sectors of industry in the first quarter of this year, according to official statistics published over the weekend.
The growth of consumer goods, which is the new focus of Soviet economic planning, was so limited in the first three months of the year that the gap between supplies and demand continued to grow, increasing inflationary pressures and adding to the rapidly mounting social unrest. Most food products are in very short supply, and their prices rose by 12% to 20% from January to March.
The country’s money supply is growing so fast, an estimated six to eight times the rate in the early 1980s, that the country is facing uncontrollable inflation in which the ruble could soon have almost no purchasing power.
“The quarter was difficult, and the destructive processes in the economy have gathered strength,†Pravda’s economics editor, Yegor Gaidar, wrote, summing up the widely shared analysis of the country’s increasingly desperate situation.
“The escalating financial crisis took us to the very edge--after which suppressed inflation will break into the open, regardless of government or trade union efforts to contain it.â€
Similar observations came from virtually all Soviet economic commentators over the weekend as well as from the State Statistics Committee.
The economy’s problems are evident not only in the way that the Soviet economy shrank in the first quarter of the year, Gaidar argued, but in developments that will mean even greater problems in subsequent months.
The sharp growth in the value of retail trade, he noted, came largely through increased sales of alcohol, through more imported goods--and through inflation. When adjusted for higher prices, the value of goods on sale increased only 1% over the first quarter of 1990.
Meanwhile, personal incomes, rising 13%, grew nearly twice as fast as planned, and the shortages were consequently felt even more acutely.
Meat supplies, already declining, are likely to drop further because of an acute shortage of livestock feed.
The decline in enterprise profits will delay retooling for the production of consumer goods.
And state expenses, which were to be held in check this year, are ballooning once again, and the Supreme Soviet, the country’s legislature, is debating new programs that will increase them further.
“The situation here is well known in international experience--the weaker the national currency the firmer and tougher the pressure to run the printing presses faster to turn out more money,†Gaidar said.
The State Statistics Committee noted in its typically dry comments, “Stability and equilibrium have not yet been achieved in the national economy,†then proceeded to provide a numerical picture of a collapsing economy.
The Soviet Union’s gross national product, the value of all the goods and services produced by the country, dropped by 1% compared to the same period a year ago, according to the report, and national income, which measures the value added to goods through production, declined 2%. Industrial production itself was down 1.2%.
These were all developments so rare in an economy that grows even in the most serious adversity that observers here could only compare the situation to World War II.
Worse, the contraction of the economy will make it more difficult, according to a number of economists, to shift it to market forces as planned.
“Turning a car that is going forward is a lot easier than turning one that is standing still,†one economic commentator wrote, “and we are rolling backwards, almost out of control.â€
The output of oil, coal and natural gas was down by 4% to 6%, according to the quarterly report. Enterprise profits declined 7.4%--although the firms were allowed to keep more of what they earned. Exports to Eastern Europe, still Moscow’s most important source of trading partners, dropped nearly 10%, while imports fell 11%. Western goods were being imported 50% faster than hard currency could be earned to pay for them.
Production of consumer goods did rise by 4.7%, but the growth of wages as part of the overall increase in the money supply was such that the gap between demand and supply increased and inflation grew by official calculation at the rate of 8%--but perhaps as much as twice that.
Food supplies were down, in some cases sharply, as production of meat, milk, eggs and vegetables all dropped, according to the quarterly report. Prices for meat at farmers’ markets rose by 16%, vegetables by 13% and fruit by 20%.
Foreign debts were rising, the trade deficit was growing and, for the first time, Soviet credit-worthiness is in doubt as enterprises are unable to meet the deadlines for payments to Western banks.
The country’s economic collapse seemed to be predicted by almost every line of the lengthy quarterly report published over the weekend by the State Statistics Committee.
President Mikhail S. Gorbachev has come under mounting political pressure in recent weeks to pull the country out of this crisis, but he acknowledged last week that there is no consensus on what needs to be done.
The Presidential Council (Cabinet) rejected as too disruptive--it would have meant twofold or threefold price increases and extensive unemployment--a package of radical measures that would have moved most of the economy from central planning to a system based largely on the market forces of supply and demand.
But the contents and timing of that program have been debated fiercely within the government and Communist Party, and so far no consensus has emerged.
Gorbachev, speaking to workers last week in Sverdlovsk, a major industrial center in the Ural Mountains, recalled how a radical plan first proposed last autumn for the transformation of the economy had been scaled back and slowed down because of likely problems.
“We were planning to move more slowly,†he said, “but then we saw the process of industry of the last three or four months. We noted that negative tendencies are not disappearing; on the contrary, they are increasing. One should not wait anymore. Everything that was scheduled for 1992 and 1993 should be done, and the main work on transferring to the market should start next year.â€
Prime Minister Nikolai I. Ryzhkov is now attempting to pull together another less radical package, which he says he will present to the Supreme Soviet in the middle of May.
“We have a clear opportunity to make a transition to a regulated market economy without complications and in an organized way,†Ryzhkov told a new farmers’ organization on Friday. The new government plan, mixing central planning and market forces, “will be precisely the balanced version that we should offer to the people to get their support,†he promised.
But there is much debate about this. The probable price increases have drawn strong objections as has the likely upsurge of unemployment. Trade unions, supported by party conservatives, oppose creation of an “employing class†and a new urban bourgeoisie nearly seven decades after their abolition.
Nikolai Y. Petrakov, Gorbachev’s economic adviser, argued that the current economic crisis has become so severe that what he called “half-measures†cannot be used. While the government does not intend to adopt a “shock therapy,†as Poland has done, Petrakov said that the country must be moved quickly and firmly to a market basis.
“There is no easy way toward the normalization of the economy,†Petrakov told the newspaper Workers’ Tribune. Lituanian VOTE: Parliament will consider compromise to end blockade. A11
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