$59-Billion Soviet Deficit in ’89 Seen : Increased Spending for Food, Housing Seeks to Advance Gorbachev Reforms

At the cost of a $59-billion budget deficit, the Soviet Union announced plans Thursday for a major effort to improve food supplies, increase the production of consumer goods and build more housing in the coming year with the hope of convincing the country that President Mikhail S. Gorbachev’s reforms are bringing a better life.

Boris I. Gostev, the Soviet finance minister, said that state spending will increase by 11% over this year in an effort to meet consumer demands and renew popular confidence in Gorbachev’s reforms.

With this boost, more than a third of state expenditures--budgeted at a total of $810 billion--would now be “directed at satisfying the needs of the people,” Gostev told the Supreme Soviet, the country’s Parliament, at its annual budget session.

Revenues Up Only 3.3%

But with revenues expected to grow by only 3.3% to an estimated $751 billion, the state would have a 7% deficit amounting to $59 billion, Gostev said.

“Life does not stand still, and we have had to take on some additional expenditures, which were unavoidable,” Gostev said later in an interview in the Kremlin. “There were, first of all, health care programs, then education, the housing program. . . . We knew the (financial) situation was tense, and still we took the decision to foot the bill.”

That decision reflects the top Soviet leadership’s belief now that to mobilize the country behind Gorbachev’s broad program of political, economic and social reforms, known as perestroika, or restructuring, people must be convinced that their lives are getting better as a result.

It also is intended to stimulate economic growth, putting a portion of the huge savings deposits at state banks into active circulation, even at the risk of increasing inflation, which is officially described as about 2% a year but probably is close to 7%.

Together with the economic development plan for next year, the budget will also attempt to accelerate the country’s overall economic reforms, including the profit-and-loss operation of all enterprises, new investment priorities, expansion of the banking system and even the introduction of stocks and bonds.

Many New Concepts

“For us, next year’s budget and plan are a bold step in that they introduce many new economic concepts--at least new for us,” a senior economist who advises the Communist Party leadership commented, asking not to be quoted by name. “It means that we are breaking through political-ideological barriers.

“For us, a budget deficit can be a good thing, inflation can help us grow, a slightly overheated economy can bring political rewards. Some people may worry about that deficit--those who think state finances should be run like a family’s--but others will see in it a commitment to improve the average man’s lot at the expense of the state.”

Still, the announcement of the deficit was a double shock: Not only were fiscally conservative Soviet lawmakers surprised by its size, but they were astounded by the very disclosure of what had been a closely guarded state secret.

“State expenditures have for several years surpassed revenues,” Gostev told the 1,500 members of the Supreme Soviet. “This problem has not emerged just today. But in the conditions of glasnost (political openness), it has been disclosed, and its causes have been identified.

“They include, among other things, an imbalanced economy, huge subsidies to inefficient farms and industries and losses from the drop in oil prices on the world market.”

Since the end of World War II, the Soviet government had always maintained that state expenditures were fully covered by its revenues and that it even had a surplus each year--”evidence of the superiority of the socialist system,” as a recent Soviet economic textbook put it.

But Gostev said in the interview that the country had run regular budget deficits, although not disclosing them in the past, and he even described the projected deficit of $59 billion for next year as roughly the same as that expected this year, following a rise in expenditures and a drop in revenues. “It’s stable,” he said when asked whether the increased expenditures next year meant a sharp rise.

Elaborating on the reasons for the budget deficit, Gostev said that 24,000 state enterprises are now operating at a loss. “Unprofitable enteprises exist due to the mechanical covering of their losses by the state,” he told the Supreme Soviet, “and this practice must be done away with.”

Defense spending was officially budgeted at $33 billion, the same as the present year, but Soviet officials have acknowledged this as a nominal figure, said to represent the armed forces’ operating costs but not new armaments, other equipment, research or intelligence activities. A total figure for defense spending will probably be published next year, officials here have said.

According to U.S. estimates, the Soviet Union spends about 15% of its gross national product each year on defense, a figure that some senior Soviet officials have conceded is correct.

Next year’s economic development plan calls for light industry, which produces consumer goods, to grow at more than twice the speed of heavy industry, which concentrates on the manufacture of capital goods.

Overall, the Soviet economy is expected to grow by 3.8% next year, according to Yuri D. Maslyukov, chairman of the State Planning Committee.

This would appear to be slower than the 4.5% to 4.7% growth expected this year, but it in fact reflects the anticipated closure of unprofitable factories and farms and a halt in the production of unwanted goods.

Although reducing the deficit is a government priority, Gostev and Maslyukov stressed in their reports to the Supreme Soviet that the improvement of living conditions would remain an overriding goal and shape the next five-year development plan, which is now being drafted, on the basis of expected economic reforms.

Gury I. Marchuk, president of the Soviet Academy of Sciences, described the new plan and budget as a breakthrough for economic reforms.

“The most difficult thing to achieve is competition among state products,” he said, praising new measures to introduce market forces in the Soviet economy. “Competition is our future. Competition is the only way to establish a market. Competition is the only way to compare quality.”

The much-discussed plans to reform the country’s pricing system, regarded by almost all economists as irrational but very difficult to change, would be formulated so that the moves do not “worsen purchasing power or living standards,” Gostev said in the interview.

While the government would whittle away at the massive subsidies, which now constitute more than a fifth of the state budget and which largely go to keep unproductive farms and factories in operation, major changes have been deferred for two years, he said, and the whole issue, although crucial, would be approached with great care to avoid economic chaos and a political backlash.

“We shall proceed very cautiously,” Gostev said, recalling the problems that China, Hungary and other Communist countries have had with price reform. “All our problems are very complicated, and we are not going to oversimplify them. We are discussing them with full candor, in the spirit of perestroika. We are facing our tasks, not looking the other way any longer, and since we now see them clearly, we can now approach a solution in earnest.”

The U.S. billed the Soviets for shoddy embassy work. Page 9.