Gorbachev and Republics Forge Key Agreement

President Mikhail S. Gorbachev on Thursday announced a breakthrough agreement with the leaders of the Soviet Union’s constituent republics on the principles of revenue-sharing that will underlie the national budget and become the basis for holding the Soviet federation together.

Gorbachev, speaking after a daylong meeting with republic leaders, said the agreement also preserves the economic ties between the central government and the republics after their declarations of sovereignty and should forestall further disintegration of the Soviet economy.

The agreement, although provisional in nature, also constitutes an important step, Gorbachev said, toward a new union treaty that he hopes will form the basis of the Soviet Union’s new federal structure and prevent the country’s breakup.

The agreement also appears to avert a major political as well as economic confrontation that would have stemmed from the refusal of the Russian Federation, largest and richest of the 15 Soviet republics, to finance the same proportion--roughly 55%--of the federal budget as before.

Gorbachev, who is battling to pull the Soviet Union out of its deepening crisis and to preserve its unity as a state, was clearly gladdened by the agreement. It was worked out by the newly strengthened Federation Council, now the country’s top policy-making body under the president’s chairmanship.

“This was a key issue, a matter of life, I would say,” Gorbachev commented in a brief television interview following the meeting. “This subject concerns everyone, all the people, since everything, including political and economic stability, depends on it.”

Gorbachev indicated that the central government had made significant concessions on the principles involved. “I must say, as self-criticism, that months were wasted while there was a tug-of-war between the center and the republics,” he said.

But the terms of the agreement were not immediately disclosed, leaving in question both the extent to which the Russian Federation will contribute to the federal budget this year and the broader issues of how revenues and costs will be generally shared in the future.

Boris N. Yeltsin, the Russian Federation president, who a week ago threatened to cut his republic’s contribution by 85%, participated in the meeting with Ivan S. Silayev, the federation’s prime minister, but they apparently agreed to increase their planned contributions to the federal budget in return for tighter controls over expenditures.

Mikhail N. Poltoranin, the Russian Federation’s information minister, said that the central government and the federation had both made significant concessions during negotiations over the New Year’s holidays.

The federation had agreed, according to Poltoranin, to increase its contribution to Soviet military expenditures and had dropped its objections to federal authorities taking a portion of a tax on businesses.

Poltoranin said the negotiations on revenue- and cost-sharing had also eliminated much of the duplication between the federal and Russian budgets. He said the federation is not opposed in principle to contributing funds to the central government, but wanted to ensure that the money is not be wasted.

Lithuania’s prime minister, Kazimiera Prunskiene, said her republic, which was represented by only an observer at the meeting, will not sign the accord, insisting instead on a separate agreement that recognizes its independence. This would have little economic impact, however, since Lithuania provides only about 1.3% of the federal budget.

Similar stands may be taken by the other Baltic republics, Estonia and Latvia, which are also seeking to secede but which have negotiated separate agreements with the Russian Federation and most of the other republics to ensure supplies of raw materials as well as markets for their own goods.

The confrontation between Gorbachev and Yeltsin had threatened to divide the country even more deeply, compounding the political crisis with a constitutional conflict that would have tempted the central government--or at least its growing rightist element--to use force to resolve.

Gorbachev, visibly wearied by the lengthy negotiations but clearly encouraged by the eventual agreement, said that “we found the principles that enable us to form both the union (federal) and republican budgets” in intensive bargaining over the past week.

This had been difficult, he said, because the Soviet economy is in transition, with central planning, state ownership and government management being gradually replaced by market forces, private as well as public ownership and entrepreneurship, and the simultaneous devolution of political power.

A crucial problem had been readjusting the low payments that producers of raw materials have received without stripping producers of manufactured goods of their resulting high profits. In the past, the national budget redistributed this income, but now each republic wants to earn the full value of everything it produces--and those with raw materials want to increase their prices.

“The situation is rather paradoxical,” Gorbachev commented. “We just want to find mechanisms to give these branches (of the economy) a helping hand, and we have found them to a large degree. That was very difficult, but we reached an agreement.”

Gorbachev said republic leaders had also signed an agreement assuring food supplies for this year.

“Everything has been done to prevent the food situation from worsening in 1991 and to improve it where possible,” he said. “On the whole, the results of our work show convincingly that we will be able to take control of the situation.”

Addressing the closing session of the Congress of People’s Deputies a week ago, Gorbachev had accused the Russian leadership of pursuing a policy of “every man for himself” by rejecting the central government’s proposals for the 1991 federal budget.

And this, Gorbachev warned the country, jeopardized the very survival of the Soviet Union as a unified, cohesive state. Failure to agree on a budget would deprive the central government of the funds needed to pay salaries of civil servants, finance public services and simply to operate, he said.

The breakdown in economic ties among the country’s various regions in the past year has already led to chronic shortages of food and basic consumer goods, widespread rationing and appeals for emergency foreign aid.

Gorbachev had set a Jan. 10 deadline for reaching a temporary economic agreement, pending conclusion of a new union treaty to replace the outdated 1922 pact establishing the Soviet Union. Once ratified by the constituent republics, the agreement will be valid until the signing of a new union treaty.

The official Soviet news agency Tass published only an outline of the agreement, but it gave some sense of the balance being struck between the central government and the republics.

Under the accord, the federal and republic budgets will draw their resources from taxes established by Soviet law and other revenues, including profits of state-owned enterprises. The agreement also provides for the creation of federal and republican funds to cushion the impact of market-oriented reforms on struggling businesses and poorer segments of society.

The agreement calls for coordinated policies on price reform to ensure fair competition and suggests that the process, key to the country’s economic transformation, begin immediately with new prices for raw materials and on the wholesale market. And it calls for coordinated policies on wages, employment, migration and welfare benefits.

Foreign economic policy would be worked out jointly under the agreement, with the Soviet Union borrowing money abroad with the agreement of the republics and the republics being able to borrow independently.

The Federation Council, headed by Gorbachev, was meeting for the first time since it acquired new policy-making powers at last month’s Congress of People’s Deputies. Formerly an advisory body, the council includes leaders of the 15 republics plus an array of smaller autonomous bodies within the country.