Kremlin Vows to Cut Military, Aid Consumers

Through sharp cuts in defense spending and capital investment, the Soviet government Monday promised its citizens better supplies of food, clothes, medicine and other consumer goods in the coming year in what officials described as a fundamental reorientation of the country’s economy.

Deputy Premier Lev A. Voronin told the Supreme Soviet, the national legislature, that the government plans a massive shift of resources to develop agriculture and light industry in response to widespread complaints that four years of perestroika (restructuring) have not improved the daily lives of most people.

President Mikhail S. Gorbachev, who opened the autumn parliamentary session, reminded deputies of the popular dissatisfaction.

“High and even exceptional importance is attached in society to this session,” he said. “People expect it to produce significant results, answers to many vital questions and major decisions. . . .

“Urgent measures are needed both to lift social tension and to advance perestroika decisively in every area, most notably the social and economic ones.”

Significant Changes Promised

Outlining government plans to pay more for agricultural produce, to open new consumer goods factories, to convert munitions plants to civilian production and to import more from abroad, Voronin promised significant changes within the next 12 months, including an end to some of the Soviet Union’s chronic shortages of many basic products.

But Voronin also acknowledged that consumer demand will continue to outstrip supply as the government attempts to transform the centrally planned economy, with its state-owned industries and huge bureaucracy, into one that would operate on the principles of “market socialism,” which are still difficult to define.

“We are carrying out a massive and broadly based transfer of the economy to a regime in which the solving of social problems has priority,” Voronin said, detailing what he called a “sharp change of direction” after another year of serious economic decline.

In agriculture, the government will pay farmers in dollars, rather than Soviet rubles, for increased production, hoping to stimulate substantial growth in farm output. Virtually all farm earnings will also be reinvested rather than being turned over to the state as in the past.

In industry, the production of consumer durables is scheduled to jump by 20% and of other consumer goods by 11%, according to the plan. Overall retail sales are expected to grow about 10% next year.

1.1% Growth Expected in 1990

But the economy is expected to grow about 1.1% next year in terms of national income, the value added to production through labor and processing, because of the severe cutbacks in other areas.

The government’s budget deficit, now $185 billion at current exchange rates, will be reduced by half through raising more money and trimming expenditures, according to Valentin V. Pavlov, the finance minister. Overall, the Soviet budget will amount to $751 billion next year.

In an initial effort to develop a capital market, the deficit will be financed by public borrowing, Pavlov said, rather than a government demand on the State Bank of the Soviet Union to finance its shortfall out of deposits.

The government’s domestic debt already amounts to about $615 billion; its net foreign debt to about $50 billion, including $45 billion owed Western banks. The foreign debt is so large, Pavlov said, that it grows simply through deferred repayments of principal and interest without any further loans.

Military spending will be reduced 8.3%, from $119 billion to $109 billion, as part of a previously announced plan to cut defense expenditures by 14% by 1991, Pavlov said. Spending on weapons development and military construction is to be cut more sharply, he said, and production of tanks, military aircraft and helicopters will be reduced substantially.

More Consumer Goods

By contrast, defense industries are to increase their production of consumer goods by 35% next year to $62 billion, according to the plans submitted to the deputies.

Although characterized largely as “emergency measures,” intended to meet popular demands for an improved living standard, the state budget and development plan are the first tangible steps in the country’ economic transformation.

Far-reaching legislation will come before the Supreme Soviet during its two-month session that Gorbachev said would lay the foundation for a new economic system, which will become the heart of perestroika.

Among the 80 items on the agenda are new laws that will allow private entrepreneurs and cooperatives to compete on equal footing with state enterprises. The new laws will authorize the leasing of state-owned factories to their workers and managers and will permit the ownership and sale of land and other natural resources.

Other laws will establish the rules by which Soviet companies operate and provide for collective bargaining by workers with their employers. The laws will institute corporate, income and turnover taxes in place of a system in which the state has taken all profits.

Voronin and Pavlov, however, said the government’s immediate task was to halt the country’s economic decline.

Production Declines

In the last year, according to Voronin, production had declined in about a third of the 178 key areas--among them oil, coal, gasoline, synthetic fibers, sugar, canned food, paper, socks and stockings--that the government tracks in its efforts to assess the state of the economy.

“The dynamism of the economy has been steadily falling in many major areas this year,” Voronin said, his remarks contrasting sharply with the traditional upbeat appraisals delivered by his predecessors. “Social tension has increased, and the national economy has been losing its balance. Against the background of these trends, deficits on the consumer market and in production have grown.”

Big Budget Deficit

The goals of the 1990 plan consequently were to reverse the negative trends, including the large budget deficit and resulting inflation, and to stabilize the economy, he said. With the fiscal improvement, more resources could be devoted to production of consumer goods and ultimately to satisfying consumer demand.

Virtually absent from Voronin’s outline of development plans were announcements of increased capital investment--he called for a cutback--and of the greater industrial capacity that the Soviet Union has regarded as the measure of real economic growth.

Tough decisions will be required in both the adoption of the state budget and development plan and in the broader economic legislation, Gorbachev told the deputies.

“We must convince our people why they are necessary and show them what consequences they will have in the near future, and what we shall face if these decisions are not made,” he said.