For Ailing Soviet Economy, U.S. Help May Be Too Late : Reforms: Gorbachev’s restructuring plans are lagging. As a result, Bush’s pledge of trade assistance is having little effect.

At the Malta summit last December, President Bush and Soviet President Mikhail S. Gorbachev proclaimed a new era of economic cooperation between the two superpowers--”an extraordinarily big plus, as far as I’m concerned,” Bush exulted.

Anxious to help Gorbachev’s historic reforms succeed, Bush pledged to reduce trade and investment restrictions between the long-hostile superpowers, cut tariffs on Soviet goods and provide technical aid for Moscow’s move toward a free-market economy.

Now, three months later, the Administration has begun to carry out its promises, but the prospect for any significant expansion in U.S.-Soviet economic relations remains largely a hope. And the likelihood that the U.S. actions will have a significant impact on the Soviet Union is equally uncertain.

The reason: The Soviets are lagging badly in carrying out the domestic economic reforms that experts say are needed to make the U.S. aid pay off. And all indications are that the Soviet economy is approaching a critical point.

Although Moscow has been talking about major economic reforms, it has put few into effect. Some private businesses are permitted, but they are heavily regulated and prohibited from growing too large. State-owned factories are free to plow any “surpluses” into modernizing their equipment, but reinvestment by Soviet factories has been minuscule.

Similarly, Moscow has announced plans to make the ruble convertible, as U.S. dollars are abroad, but that process has barely begun. And--unfortunately for the reform effort--the attempt to create private-sector-style “cooperatives” has created a political backlash because of price-gouging by seemingly overzealous Soviet entrepreneurs.

“So far, it has not helped anything,” Stanislav S. Shatalin, chief economist of the Soviet Academy of Sciences, concedes. Shatalin was here last month for a conference sponsored by the University of Maryland.

Meanwhile, the Soviet economy, which took a notable turn downward in mid-1989, is sliding further into a morass. Output is declining--and visibly. Shortages of food, soap and other basic commodities are increasing. Inflation has risen sharply--to 10% this year from 6% in 1989--and next year could top 13%, according to most forecasts. And the trade picture has worsened dramatically.

In a particularly ominous turn, U.S. analysts say, the shortages have begun feeding on one another, exacerbating the existing problems in the economy. For example, a shortfall in the production of engines has created a serious shortage of railroad locomotives, which in turn is expected to further cripple the transportation system--making it still more difficult to ship food supplies.

“On the whole, I don’t see any good news coming out of the Soviet economy,” asserts Jan Vanous, research director of PlanEcon Inc., a Washington-based think tank that specializes in East Bloc economic trends.

U.S. Sovietologists, including some within the Bush Administration, are increasingly worried that the economy’s failures could soon endanger Gorbachev’s political reforms.

“The strategy is missing,” says Arthur Hartman, former U.S. ambassador to the Soviet Union and now a Washington-based consultant. “Up to now, Gorbachev has been a kind of arbiter, balancing one set of interests against another.” Unless real reform begins to take hold soon, Hartman says, “at some point he’s going to be forced to use some pretty Draconian measures.”

The problem is not that Moscow does not understand what needs to be done in technical terms. What has stopped a full-fledged plunge into perestroika is political resistance to what is, by any standard, the wrenching nature and magnitude of the task.

Both Gorbachev’s top strategists and Western economists agree that the Soviets need to privatize their industries, institute a Western-style pricing system and allow market forces, rather than central planners, to dictate what should be made and sold. Besides these basic structural reforms, the Soviets must create an entire banking system almost from scratch, completely rewrite their tax system and learn Western-style accounting procedures.

They also must attract capital and train managers.

But “they’re still fighting over principles, not over how to implement reform,” says Ed A. Hewitt, a Brookings Institution economist who specializes in the Soviet Union.

Valery Makarov, director of the Central Economics and Mathematical Institute of the Soviet Academy of Sciences, agrees. “It’s a very unstable situation,” he says.

Joseph E. Goldberg, an analyst with the Institute for National Strategic Studies, the Pentagon’s think tank, frets that a collapse of the Soviet economy could give Moscow’s hard-liners a chance to regain power and reinstitute the kind of “hostile foreign policy” that prevailed during the Cold War.

The dilemma facing U.S. policy-makers is that apart from providing sidelines encouragement, there may be little that Washington can do to help rescue the Soviet economy. The trade benefits and technical aid that Bush proffered at Malta are virtually useless until there is a proper climate for business there. Only the Soviets can carry out the needed reforms.

As a result, many Sovietologists remain convinced that Washington ought to hold back on any real largess until the Soviets demonstrate plainly that they intend to make the necessary reforms.

“Remove the restraints, OK, but no preferences until they adopt the needed (policies),” Hartman told a House subcommittee last month.

More optimistic Soviet watchers believe such a turnaround may be about to occur. Just last week, the Supreme Soviet, the country’s legislature, approved a constitutional amendment paving the way for a new Western-style presidency that would give Gorbachev sweeping powers to restructure the political and economic system.

Gorbachev lost no time in signaling that extensive changes are on the way. “Life itself has confronted us with the need to carry out a fundamental regrouping of our forces at the highest echelons of power,” he told lawmakers. “It is imperative to strengthen executive power to ensure that our laws work.”

Indeed, the Soviet leader already has installed Nikolai Petrakov, a Western-style free-marketeer, to be his own personal economic adviser. Petrakov, an advocate of sweeping price reform, is expected to hammer out a plan for rapid economic restructuring similar to Poland’s.

Even so, it will not be easy. As bold a shake-up as the Polish economy has needed, the Soviet Union requires even more radical restructuring. Central planning there has been even more heavy handed, and the Soviets have lived under communism for more than 70 years, not just the 40 since the end of World War II.

As a result, where the Poles almost universally became disenchanted with the old regime, many Soviets adamantly oppose abandoning traditional Communist tenets such as the notion that all property should be owned by the state. Selling capitalist-style policies certainly will not be easy, Hartman warns, since “many in Russia believe these policies are immoral.”

Brookings’ Hewitt argues that time is on Gorbachev’s side. As the economy continues to worsen, “more and more Russians are simply going to get tired of arguing with each other,” he says. “The current crisis will make people more radical. I think the notions about the legitimacy of private property will prevail within a year.”

Meanwhile, the Administration is moving cautiously--but steadily--to deliver on the promises that the President made at Malta. Last Friday, U.S. and Soviet negotiators completed their second set of talks on a trade treaty--the first step toward the eventual lifting of U.S. trade restrictions.

The two sides also are planning to complete an investment pact, possibly in time for Bush and Gorbachev to sign at their summit in June. And the Administration has embarked on a high-level review of restrictions on the sale of strategically sensitive but economically valuable Western goods and technology to the Soviet Union.

The Administration contends it still is confident that Gorbachev will move ahead soon. Secretary of State James A. Baker III told a congressional hearing recently that Gorbachev emerged from their last meeting “more determined than ever to double his bets on perestroika .”