Be Ready for Hard Times, Soviets Told : Reforms: The premier warns the nation. The crisis may become a ‘crash,’ an economist says.

Prime Minister Nikolai I. Ryzhkov, outlining plans for the radical but gradual reform of the Soviet economy, said Thursday that the country will have to go through a severe recession marked by rising prices, serious unemployment and the bankruptcy of many enterprises as it corrects 70 years of mistaken policies.

While reaffirming the government’s determination to move away from an economy based on state ownership and central planning, Ryzhkov said there is little choice in carrying out the transformation but to use the same bureaucratic methods that brought the country to the brink of economic ruin.

To do otherwise and let market forces take over immediately, he told the Supreme Soviet, the country’s legislature, would create even greater problems and risk a dangerous social upheaval.

But the program drew angry responses from some deputies who denounced it as insufficient and others who said its impact would be too painful. The radical Inter-Regional Group of Deputies, which functions as an opposition within the legislature, tabled a no-confidence motion and challenged the government’s plans.

“The crisis now threatens to become a crash,” Gennady I. Filshin, a Siberian economist, declared, denouncing the program as “illogical and feeble.”

“In five years, the government has literally not taken a single step toward structural economic reform,” Filshin said. “It seems to me that the government today simply is not managing the economy.”

Galina Starovoitova, another member of the Inter-Regional Group, warned that tripling bread prices on July 1, as Ryzhkov announced, could cause demonstrations and even riots. “The bread price increases will coincide with the start of the Communist Party’s congress,” she said. “We are certain to see people in the streets.”

And a Ukrainian deputy described the program, with its price increases and increased unemployment, as “surgery without anesthesia” and said the urban poor and farmers would be hurt badly.

“This is a detonator for a social explosion,” he said. “Raising prices in the country could transform a tense situation into a tragic one.”

The Inter-Regional Group plans to put forward its own program and to call for a “government of national trust” to carry it out. The present Communist Party government under Ryzhkov has “exhausted” the people’s trust, the group said.

Ryzhkov, who sat impassively through the torrent of criticism, had told the lawmakers in his own two-hour speech: “There are opponents to this change, and there is still debate in society. But there is no chance of returning to the old methods.”

After months of public debate, Ryzhkov’s report to the Supreme Soviet was surprising only in the extent of its compromises--virtually every move toward the radical reorientation of the economy was modified by cautious restrictions on the scope and speed of the shift.

“Our decision is made--we have to move to the market,” Ryzhkov said as he laid out a three-stage, five-year plan to replace Soviet socialism with a mixed economy, which would be based increasingly on market forces and entrepreneurship.

The government’s intent, he said, is to withdraw, step-by-step, from the ownership and management of industry and commerce and to allow the enterprises to run themselves as self-financed or investor-owned companies. About 60% of state enterprises will issue bonds and shares in a step toward eventual privatization.

Prices, now set by the government without relation either to the cost of production, a product’s value in the marketplace or to world prices, would eventually be determined by supply and demand.

The government would initially continue to fix prices for basic products and set guidelines for many others. In the first year, more than 55% of the goods sold would be at state-set prices, and a further 25% to 30% would be under government guidelines, leaving perhaps only 15% of sales governed by market forces.

But the government does plan to reduce the subsidies, about $160 billion a year for food alone, that were built into the Soviet economy long ago and have contributed to huge budget deficits.

Bread prices will increase July 1 from about 35 cents for a popular-size loaf of 1 kilogram (2.2 pounds) to the equivalent of $1.06 at official exchange rates. In January, the price of meat will go up 230% on average, that of fish 250%, those of milk and sugar 200%.

Still, there will be subsidies, Ryzhkov said, for the state will be paying about $6.55 a pound for the beef it resells at $4 a pound.

Clothing and fabric prices will be increased 30% to 50%, shoes 35%, construction materials used in housing 50% and many other consumer and household goods an average of 30%.

Overall, wholesale prices will rise an average of 46%, but those for fuel and energy will go up by 82%, for metallurgical products 71% and for chemicals 64% next year. The prices paid farmers for agricultural produce are being increased an average of 55% with this year’s harvest.

Altogether, the increases are expected to cost Soviet consumers the equivalent of $318 billion next year, but workers will be compensated for two-thirds of this, $216 billion, through additional pay and allowances. Low-income families, pensioners and people on fixed incomes will also be protected from the price boosts with increased welfare payments.

This will have the economic effect of making each Soviet enterprise pay its true labor costs and end the siphoning of profits from well-managed operations to underwrite those that are less efficient.

It will also, quite deliberately, draw out of the economy some of the recent pay increases granted workers but not matched by greater production.

Other measures call for freeing the Soviet State Bank from direct government control and establishing a system of commercial banks; for a new credit policy so that interest rates for long-term loans, now a maximum of 0.75% a year, are increased to 11%, and the establishment of a bond market to finance industrial development.

Knowing that the cost will be high, the government plans to seek a popular mandate to carry out the program with a national referendum later this year.

A new national opinion survey, published Thursday by the government newspaper Izvestia, indicated that 56% of those questioned favored a “market economy” and 28% were opposed.

Among those favoring the change, according to the survey by the Center for the Study of Public Opinion, two-thirds wanted a gradual transition rather than quick transition.

Fifty-nine percent of those surveyed said they did not trust the government to uphold living standards and prevent unemployment.

Izvestia commented, “The population supports the idea of the market economy in principle, but has strong fears of a significant worsening of living standards as a result.”