Soviet Premier Admits Poor Planning, Urges Radical Reforms to Bolster Economy

In the most critical appraisal of the Soviet Union’s economy given by the head of the country’s government, Premier Nikolai I. Ryzhkov acknowledged Wednesday that it was so weakened by poor planning and overspending that it had been unable in recent years to raise living standards, ensure the national security and finance further development.

Speaking to the Congress of People’s Deputies after he was reappointed premier, Ryzhkov, in striking contrast to past Soviet leaders’ triumphal declarations of progress, told the country’s new legislature that only radical economic reforms, including the introduction of major elements of the free-market forces of supply and demand, could reverse the decline.

Outlining the basic economic policies, Ryzhkov pledged to reduce military spending further, to increase the government’s investment in agriculture and rural development, to cut back on the bureaucracy, to increase the incomes of those below the officially recognized poverty line and to curtail the growth of heavy industry.

Years of Cost-Cutting

In his somber report, Ryzhkov said that it would take five to six years of cost-cutting to eliminate the budget deficit, estimated at the equivalent of $165 billion, and that Moscow’s foreign borrowings have risen so sharply that repayments now require more than a quarter of its export earnings.

Providing further details on the Soviet Union’s long-secret military spending, Ryzhkov told the congress that $50 billion of the overall defense budget of $119 billion this year will go to buy arms and equipment and that another $23.5 billion will go for research and development of new weapons.

The balance of the defense budget includes $31 billion for pay and other personnel costs, $7 billion for training, $3.5 billion for pensions and the rest for other, undisclosed needs.

The United States, by comparison, spends about $87 billion of its $300-billion defense budget on procurement and about $70 billion on personnel costs.

The Soviet Union’s long involvement in the Afghan war had cost the country about $7.7 billion a year, Ryzhkov said, responding to deputies’ calls for the disclosure of that cost. The last of the Soviet Union’s 115,000 troops were withdrawn from Afghanistan in February. Ryzhkov also disclosed that spending on the country’s military space projects this year will cost an additional $6 billion, accounting for more than half of the $10.6-billion space program.

The new Soviet space shuttle project, which has potential military applications, will require $2 billion and the civilian program $2.6 billion.

In the United States, NASA’s budget is $13 billion for 1990, excluding Air Force launches.

Ryzhkov gave no details of the defense effort in space, but he justified the costs, saying: “It could be said that, according to estimates made by the Defense Ministry’s experts, the mere realization of the military space program would increase the combat effectiveness of our armed forces by 1 1/2 to 2 times.”

President Mikhail S. Gorbachev, who last week announced the overall figure on military spending, has pledged to cut Soviet military spending by 14% in the next two years and to reduce the spending on the purchase and development of new weapons by 18%.

Ryzhkov said that $46 billion had already been cut this year and next from military spending plans and that the proportion of the country’s national income spent on defense would be reduced by as much as half by 1995.

For years, Moscow provided only the personnel costs and hid the other figures in various parts of the state budget.

Western analysts still believe that the figures given by Moscow understate both the actual outlay on the military and, at 9% of the gross national product, the real defense burden here.

“In the spirit of perestroika and glasnost , the procedure for military decision-making will be changed considerably,” Ryzhkov said, referring respectively to Gorbachev’s overall reform program and his new policy of openness.

“Military matters will be dealt with in the same way as the state plan and the budget,” he told the assembly.

Food Is First Priority

In his policy address, Ryzhkov said that the new government to be formed this week under his leadership will make the improvement of food supplies its first priority.

“The main goal now is to improve the situation in agriculture,” he said. “This would reduce the tensions in society by 70%.”

Agriculture will receive large, new capital investments--as much as $185 billion, a 50% increase--in the coming five years to accelerate rural development, he said, and farmers will be allowed to choose whether to remain in the country’s collective and state farm system or to go into family farming or other rural enterprises on a private basis.

Another priority, he said, will be easing the burden of the 43 million people living below the poverty line of $110 a month per person.

About half are these people are pensioners, and their monthly pension checks will be increased in January, he added.

Economic Reforms

Sweeping economic reforms are also to be implemented in industry and commerce, Ryzhkov said, and the government is determined to have them ready by the time that the next five-year development plan is adopted in early 1991.

He disclosed that the shift from central planning and management of the economy to a form of market socialism will include anti-monopoly legislation later this year to protect the new private and cooperative businesses from large state-owned enterprises and to ensure fair competition.

Other major economic reforms would include replacement of central planning with “a managed market economy”; economic decentralization, including broad authority to regional and local governments to manage state enterprises in their jurisdictions; the encouragement of the private and cooperative businesses and their inclusion on equal footing in the economy, and the government’s collection of taxes from state-owned enterprises, which now simply hand over their profits with little incentive to increase them.

But he rejected proposals by a number of leading liberal economists that the government borrow extensively in the next two or three years to import consumer products in order to ease the transition to a market economy and to increase popular confidence in the reforms.

High Foreign Debt Noted

“Our high import needs and our limited abilities to pay for them have already led to a foreign debt exceeding by two times the revenues we have from exporting goods and services,” he said, but provided no figures. “Due to that, we have to negotiate short-term credits in increasing amounts. All our revenues from oil are not enough to pay the interest.

“The government considers that an inflated foreign debt could bring dangerous economic and political consequences.”