Budget Running in the Red for Years, Soviets Disclose

For the past decade the Soviet Union has been running a substantial budget deficit, at times “critically large,” Finance Minister Boris I. Gostev disclosed Tuesday in perhaps the frankest acknowledgement of the severity of Moscow’s economic difficulties.

Gostev said for the first time in public that the budget deficit, publicly acknowledged only last week, had begun in the mid-1970s and reached a peak of nearly $61 billion in 1985.

Funds have been borrowed from the State Bank of the Soviet Union and other domestic banks to cover the accumulating debt, which informed Soviet economists have estimated to be more than $400 billion in a country where the gross national product, a key measure of overall economic strength, is put at perhaps $1.4 trillion at present exchange rates.

“We have used domestic bank credits to cover the deficits,” Gostev said at a news conference. “This is usual economic practice throughout the world, although this is the first time we have spoken so openly about it.”

Prominent Soviet economists have argued for a moderate budget deficit to underwrite the political and economic reforms of President Mikhail S. Gorbachev, noting that as much as 8% to 10% is viewed in the West as encouraging economic growth. But Gostev said Tuesday that the current deficit far exceeds what the government considers acceptable and that intensive efforts will be made to eliminate it.

Industrial managers, he said, will try to trim $40 billion from next year’s projected deficit of $57 billion, notably by getting some of the country’s 24,000 money-losing state enterprises to make a profit.

At the same time, the government will attempt to reduce its administrative costs by reducing the size of the huge bureaucracy.

Gostev and Yuri D. Maslyukov, a vice premier and chairman of the State Planning Committee, all but ruled out any immediate effort to rationalize prices and, in the process, to eliminate the enormous subsidies the government uses to maintain low prices for food, housing and other necessities.

Jan Vanous, a Washington consultant whose firm, PlanEcon, tracks the Soviet economy, speculated that Moscow’s deficit is even larger--$104 billion to $120 billion both last year and this--because of its unwillingness, or inability, to reduce the subsidies. In comparison, the U.S. budget deficit in fiscal 1988 that ended Sept. 30 was $155.1 billion.

“For the first time, we have clearly stated that a deficit exists,” Gostev told the reporters. “We cannot live with such a deficit, and so we will try to get rid of it during this coming year.”

Deficit of 7%

At the same time, he noted that the projected deficit is only 7% of the state budget and only 4% of the gross national product, the value of all goods and services, and consequently manageable.

In the extraordinarily candid and wide-ranging news conference, Gostev also acknowledged that the official estimate of inflation of 0.9% to 1.5% a year greatly understated the impact of rapid increases in the amount of money in circulation, the continuing budget deficits and the inability of Soviet industry to satisfy consumer demand.

“We do have inflation in the Soviet Union,” he said, “but it is of a different nature to that in Western countries. It can be seen in structural changes in our market--not so much in higher prices as in the disappearance of cheap goods.”

Inexpensive consumer products have become increasingly difficult to find in recent years because of the system of state-set prices and the pressure put on industrial enterprises to increase their profits. Since producers are not free to charge whatever consumers are willing to pay, or to raise prices gradually to cover higher production costs, they stop manufacturing the inexpensive goods and replace them with more expensive ones that bring a higher profit.

Soviet economists speak privately of a rate of inflation between 5% and 7%. This would be higher than that in the United States or Western Europe, but the figure is largely impressionistic--how much more people feel it costs them to live now, compared to a year ago.

Maslyukov said that wages are now rising faster than labor productivity and that the effect is bound to be inflationary.

“We have more money than we have goods,” he told the reporters. “That is why the shelves in our stores are empty.”

The State Statistics Committee is working to develop a better measure of inflation than the average of state-set prices it now uses.

“We want something that reflects how people actually live, that reflects how they spend their money,” Gostev said. “What we have now tells us how fast state enterprises have increased their prices, but says nothing about the cost of living.”

He and Maslyukov said that despite the calls of radical economists for the creation of a full-fledged “socialist market,” the government will not end its control of consumer and wholesale prices.

“If we want to maintain the low level of prices, we must ensure state control,” Maslyukov said. “We are not ready for the anarchy of the market. Competition in the internal economy will be required, but the basis for that is not yet ready.”

Instead, he said, Soviet planners envisage a state-run, computer-organized market, where batteries of high-speed computers match orders with factory production capabilities.