Soviets Planning Big Price Rises : Reforms: A new program will radically alter the economy, well-informed economists say. Officials fear widespread protests by workers. Strikes may be barred.

The Soviet government, risking serious social unrest, is planning to let its low, state-controlled retail prices double and even triple in the coming 18 months as part of a program of radical economic reforms, well-informed economists said Monday.

The plans call for only half of the price increases to be covered through a system that ties incomes to inflation, according to an outline of the government’s reform package; any additional pay apparently will depend on greater worker productivity.

Anticipating widespread worker protests as a result of new policies that the government acknowledges will seem “very harsh,” President Mikhail S. Gorbachev is expected to outlaw strikes for the next two years, the sources said, and then to use his broad executive powers to take other stern measures to ensure law and order.

The reforms will also include, as expected, the extensive privatization of the Soviet Union’s state-owned industries, the economists were told at a high-level briefing here Monday. Most small- and medium-sized enterprises will be leased or sold to individual entrepreneurs, families and cooperatives, the economists said afterwards, and many large firms will be turned over in the same way to stockholders who will be able to trade their shares on new stock exchanges.

Widespread unemployment, certainly running into tens of millions of workers, is foreseen as the new owners and managers rationalize their operations and the state simply closes others that remain unprofitable. The government is now making plans for retraining and re-employment programs, as well as unemployment benefits, according to an outline of the reform package circulating in government circles.

A confidential government summary of the measures says that Gorbachev will also use his new executive powers to prohibit regional and local governments from shutting down plants for environmental reasons and to end the present right of Soviet workers to elect the directors and managers of their enterprises.

An additional element of the program will be a major effort to attract foreign investment, with a new investment code based on what one economist described as “unrestrained capitalism.” The Soviet ruble will be progressively devalued to bring its value, now a nominal $1.60 but really less than a tenth that, into line with foreign currencies.

Leonid I. Abalkin, the vice premier for economic policy, confirmed that radical measures are planned for coming months to shift the whole Soviet economy into a framework in which the market forces of supply and demand and some private entrepreneurship replace central planning and state ownership.

But he told a press conference that, although the reform package is supposed to be ready today for governmental review, major decisions about its shape have not yet been made. Supporting legislation is scheduled to be introduced by May 1 for implementation beginning in July.

Most of the measures were included in the initial economic reform program presented by Abalkin in November and the one later formally proposed by Prime Minister Nikolai I. Ryzhkov and approved by the Congress of People’s Deputies (Parliament).

That program called for five more years of central planning, with the gradual introduction of some elements of market economy. It postponed all price reform for several years.

Abalkin said that the reforms are now being speeded up--measures planned for 1993 will be implemented this year, starting July 1--because of the “destabilization of the political system, development of ethnic and regional conflicts and deficits in the consumer goods markets.”

The Soviet Union, he acknowledged, is in “a serious economic crisis,” with its first trade deficit in 14 years and industrial production down 1.2% in the first quarter of this year, compared to the last quarter of 1989.

The “strategic choice,” Abalkin said, has been made--to transform the Soviet economy through radical change into a “regulated market economy” with the introduction of virtually all elements of a market economy as found in the West, but with more state direction and continued state ownership of some means of production.

“We want a highly developed economy, one able to absorb technological advances, serve its consumers, based on healthy competition and entrepreneurship,” Abalkin said. “This is impossible without the introduction of market mechanisms--all the market mechanisms of the late 20th Century, including state regulation and the social protection of the population. A regulated market economy, which is our goal, is a much more complicated mechanism than the name implies.”

While Abalkin remained cautious in discussing the government’s plans publicly, he and other top officials had briefed senior Soviet economists earlier in the day on the contents of the program and pleaded for their support.

“The government is risking a potentially catastrophic upheaval in the plans it is making and the way it intends to implement them,” Alexei A. Sergeyev, a prominent conservative economist, said after the briefing.

“The people will not accept such massive unemployment, they will reject sharp increases in prices, they do not want the stratification of society by income levels. This is not a theoretical debate, as in the past, over socialism versus capitalism, private ownership versus state ownership. This is about the consequences of these measures . . . and we will have an explosion that Abalkin does not expect.”

Abalkin, addressing journalists later, acknowledged that “a speeding transition to a regulated market economy will come up against powerful opposition. But we must do it, whether we like it or not.”

“What we must do first,” he continued, “is make people understand and see clearly that without such a transition the country has no future as a highly developed and great power.”

But he dodged virtually all specific questions, saying that key decisions had not yet been made, that the program is still being assessed and corrected and that the necessary legislation is being drafted.

An outline of the program circulated confidentially by the Council of Ministers to government officials said, however, that Soviet enterprises must be completely freed from central planning and allowed to make all their own production plans, acquire supplies wherever they can and sell their output to whomever they want at whatever price they can obtain.

State purchases, which now create a basic framework in the economy, will be continued to “the bare strategic minimum needed to support poorer segments of society,” according to the outline, described as the “theses” for the reform package.

That document affirms plans to privatize state-owned firms and to establish a capital market complete with publicly owned companies and a stock exchange. But it advances the date for the changes by five years.

Price reform, an issue Abalkin would not be drawn into at the press conference, would begin later this year with the state maintaining “flexible prices” only for such basic commodities as coal, gas, oil, electricity, metal and transport tariffs. All other prices would be set according to supply and demand, according to the “theses.”

“Prices of consumer goods can grow several times over,” the government’s position paper acknowledges, promising the indexation of incomes so that there would be some compensation but limiting automatic increases to no more than 50%, and additional increases based on productivity to a maximum of 40%.

To prevent firms from compensating employees more than desired, “the state reserves the right of rigid taxation of salaries”--in effect the authority to impose a wage freeze. Progressive taxation of all incomes will also be introduced. Tax inspectors will closely monitor enterprises to ensure that not only are they paying the new taxes but that their profits are used in accord with government policies.

In agriculture, farmers will be allowed to charge whatever the market will pay for their produce, but the government will collect its agricultural taxes and fees “in kind”--meat, milk, potatoes, grain, fruit, vegetables and so forth that will then be sold at what are described as “flexible prices,” presumably to help regulate the market.

“The strongest farms will benefit, the weaker may go bankrupt,” the government acknowledges. “But then the bankrupt can be revived as cooperatives or as individual farms or their land can be withdrawn from agricultural use to be reassigned.”

Abalkin told the economists that the program is “extremely painful and would be felt by every segment of society, every individual,” according to a liberal economist, who asked not to be quoted by name. “The decision has been made; these measures must go through despite the political and social cost.”