Kremlin Takes Aim at Economic Malaise : Soviet Union: Time is running out for reforms, a top aide to President Gorbachev warns. He outlines an urgent plan to alter the economy.

Warning that the Soviet Union’s deepening economic crisis is now threatening its political reforms, President Mikhail S. Gorbachev’s chief economic adviser set out an urgent, step-by-step plan Monday for transforming the country’s economy into one of “market socialism.”

Deputy Prime Minister Leonid I. Abalkin, opening a national economic conference, said the country is rapidly running out of time if the whole reform effort is to succeed. He said that the economy must become the No. 1 political priority.

Popular discontent is rising over severe consumer shortages and higher prices, Abalkin acknowledged. Most people say that perestroika-- restructuring--has done nothing to raise their living standards and perhaps made them worse, he said, adding that confidence in the Communist Party leadership is declining.

So severe is the crisis--the economy grew at an annual rate of only 1% in the third quarter, and winter is setting in without adequate stores of fuel and food--that there is again talk of sweeping, though unspecified, “emergency measures” to get the nation through the difficult period ahead.

“We are in risk of a creeping return, an unseen return,” Abalkin said of pressures on the leadership to revert to the old political system in order to get quick results on the present economic problems. “You won’t find anyone who advocates a return to the old system, but inch by inch, an ‘instruction’ here and an ‘order’ there, a real return develops.”

Other economists, distinguished largely by their degrees of pessimism, agreed. “The situation is dangerous,” said Stanislav S. Shatalin, another leading Soviet economist. “The threat is grave.”

And Abel Aganbegyan, rector of the Academy of the National Economy, said the government had “underestimated the danger of the current situation on the consumer market.”

“Urgent measures are those that are felt by the people,” Aganbegyan said, calling for steps that would put consumer goods into the shops immediately. “Those measures with no effect, that exist only on paper, are not real measures. We need to act at long last to remove the imbalance caused by unsatisfied (consumer) demand.”

Despite their agreement on the severity of the crisis, its political implications and even its causes, Soviet economists have differed sharply on how to get out of it. Achieving a consensus on long-term strategy and immediate tactics is a major aim of the three-day conference, in which Gorbachev and other members of the ruling Politburo are participating.

“Highly unpopular reforms are required,” Abalkin said, referring to likely increases in consumer prices, probable unemployment, charges for services and goods now provided free or at nominal fees. “That must be clearly understood. Without taking strict and unpopular measures, we will be thrown backward.”

Outlining the government’s position, Abalkin said the country must adopt a well-thought-out plan for the next five to six years that ensures a steady, coordinated progression from a central planned economy to one where the market is the major force but does not destabilize the country further.

“We cannot delay the reforms,” Abalkin said of the long-stalled efforts to push through a fundamental economic restructuring. “The time is such that it will not wait for us. The value of time has grown enormously, in fact, and we must make our steps forward shackled by some very heavy weights on our legs.”

But he cautioned against moving abruptly, without sufficient preparation, and he outlined a transition program that would proceed through three stages over five to six years.

The stages, in fact, blur considerably when examined as specific new policies governing prices, taxes, governmental fiscal discipline, development projects, consumer imports and a Soviet ruble that would be convertible into U.S. dollars.

A key element of the plan, however, is gradual price reform--an effort to force the Soviet economy to face up to its real costs, end subsidies to inefficient enterprises and set prices and economic priorities accordingly.

Abalkin’s plan calls for some wholesale prices and wages to begin rising next year in relation to supply and demand. Retail prices would follow in 1991, starting with luxury items and moving to basic products. By the mid-1990s, prices would largely be freed from state control.

The proposal on price reform provoked immediate controversy, perhaps through its sheer moderation.

Valentin S. Pavlov, the finance minister, told journalists, “We are now late in tackling price reform by at least two years, but if we started it now, it would just lead to a mess.”

But Nikolai Y. Petrakov, a leading research economist, pressed for price reform as the best way to force efficiency on Soviet enterprises by making them compete in terms of price, quality and other consumer considerations.

For Petrakov, however, price reform is only one of the measures the country should undertake. Another controversial proposal would involve the import of massive amounts of U.S., West European and Japanese consumer products, their resale at substantially higher prices and the resulting absorption of up to half of the estimated $725 billion in the hands of the population.

But that brought a protest from Pavlov. What spare funds the country had, he said, should be used in purchasing equipment that would increase Soviet production capacity.

Ed A. Hewitt, a specialist on the Soviet economy at the Brookings Institution in Washington, said here after listening to Abalkin’s report that he thought there was “a decent chance” that the plan would work.

“The next year is where we are going to find out if they are really going to do it,” Hewitt said of the whole effort at economic reform. “Abalkin has now thrown down the gauntlet.”

By 1995, however, Hewitt added, “If you think of what he is doing, you could have a good chunk of the economy denationalized.”

But after four years of mismanaged reforms, which Hewitt said have only worsened the economic situation, the Soviet public must now be persuaded that the new efforts will improve their living standards. The government must not only cut the budget deficit, shrinking it from this year’s figure of more than $160 billion, but it must also satisfy the pent-up consumer demand that Aganbegyan talked about.

In a public opinion survey conducted to coincide with the conference and the development of the new program, 54% of those questioned said their first priority was “introduction of strict discipline and order,” while 40% said they wanted the government to tighten, not loosen, price controls.