National Agenda: Soviet Union : Gorbachev Playing Beat the Clock on His Perestroika Reforms : * In two weeks, the Soviet leader must tell the West how he will transform the economy. At stake are billions of dollars and two competing blueprints.

After three years of fierce debate and false starts, President Mikhail S. Gorbachev must, within the next two weeks, make some of his most crucial decisions: how to transform the Soviet Union’s disintegrating, state-run economy so that market forces, entrepreneurship and private ownership predominate to bring the country real growth and prosperity.

The decision is daunting in its impact, and the deadline makes it more so, for not only is the fate of perestroika in the balance but the whole future of the nation.

“We are not talking about a better banking system or a plan to increase production, reduce inflation and eliminate the budget deficit or even a program of industrial development into the next century,” Pavel Bunich, a leading Soviet economist, says. “We are talking about all that and more--matters of great complexity that nonetheless touch everyone’s life.

“But there is even more, much more, to all this for we are deciding the nature of the economic system, and consequently of the political system, that we will have. The very character of the nation, the way that we act toward one another, the position we occupy in the world--all that will be decided this month.”

The deadline stems from Gorbachev’s scheduled meeting in London on July 17 with leaders of the Group of Seven major Western industrial countries. There he is to present his program for economic reform and seek assistance that, including grants, loans, trade credits and direct investment, might total anywhere from $15 billion to $30 billion a year.

The Background

The Soviet economy--state-owned, centrally planned and bureaucratically managed for seven decades--had begun to collapse long before Gorbachev came to power in 1985, and he quickly made its reform a central thrust of his policies.

The Soviet Communist Party decided in 1988, over conservative objections, to transform the country’s economy with the introduction of free prices, private ownership of many enterprises, a greatly reduced role for the government and other measures that would make market forces the country’s economic engine.

But the transition has been fitful and anguished as a result of political hesitancy, half-measures and plain mistakes. The rate of decline has, as a result, increased sharply. The Soviet economy is now shrinking at an annual rate of 11% to 15%, and inflation is running well over 100% a year. The government’s total budget deficit is likely to be more than $400 billion this year. More than 90% of basic consumer goods are not regularly on sale any longer, and unemployment could grow to as much as 7 million by the year’s end.

The Issues

While Gorbachev remains committed to the establishment of a free-market economy, a controversy is raging about the best way to achieve it--and to shape the new political structure that will follow.

Prime Minister Valentin S. Pavlov argues that the economic disintegration must be halted before further changes are attempted. The government’s “anti-crisis program” is geared, first of all, to preserve and restore the linkages in the old, state-run economy; elimination of the budget deficit, liberalization of prices and convertibility of the Soviet ruble are key goals.

But Vladimir Shcherbakov, the new first deputy prime minister for economic reform, says the government program also includes step-by-step plans for the privatization of a substantial portion of state-owned enterprises, incentives for foreign investors and other measures that hasten the transition.

Overall, Pavlov and Shcherbakov reflect the ambivalence of most Soviet economists, who want the dynamism of the market but who believe that, with the lives of 290 million people at stake, all this must be carefully managed. The collapse of the Soviet Union’s centrally planned economy has not persuaded them that such planning is fatally flawed--just that it was badly done.

Grigory Yavlinsky, a radical, pro-market economist, is urging Gorbachev to set much different priorities, emphasizing growth and change rather than stabilization; making private enterprise at home and integration into the world economy driving forces of the Soviet economy for the first time.

He accepts that there will be serious shortfalls in production, including food and consumer goods, and insists that it is better to use Western credits to make up the deficits than to reinstitute the old “administrative command system.”

Yavlinsky’s plan envisions extensive Western assistance--at least $15 billion a year over five years and perhaps twice that amount in some--in order to support the ruble as it is made convertible into other currencies, thus strengthening the whole economy.

Originally dubbed the “Grand Bargain,” the plan was renamed the “Window of Opportunity” because of conservative assertions that it amounted to a sellout of Soviet interests to Western capitalists.

Yavlinsky’s concept of “engagement” with the West is a crucial difference, for it recognizes that a problem of the Soviet economy, central to its inefficiency, has been its isolation from international markets. Shcherbakov, in contrast, says the Soviet Union will join the world economy, but at its own pace and on its own terms.

A further difference between Yavlinsky’s proposal and the government program is his insistence on further democratization and other political reforms to underpin the economic changes.

Shcherbakov dismissed Yavlinsky’s proposal as “a pretty piece of paper,” and Pavlov mocked it as drawn up by Harvard University professors, who advised Yavlinsky, and irrelevant to Soviet needs. Behind them is a coalition of conservatives in the Soviet legislature, the country’s powerful military-industrial complex and most government and Communist Party officials.

Yavlinsky is no less scathing about Shcherbakov’s efforts to update the government’s reform program, likening it to “trying to breathe life into a corpse.” He is backed by those who occupy the “center-left” of Soviet politics, including Boris N. Yeltsin, the president of Russia, the largest Soviet republic.

The Outlook

Gorbachev said he intends to draft his own program, pulling together elements of the government’s and of Yavlinsky’s with recommendations from other advisers. He is working virtually full time on the program, according to aides, and has assembled a group of independent economists at a country house outside Moscow to assist him.

“He said he liked 90% of mine,” Yavlinsky remarked after a meeting last week with the president. “I didn’t ask which 10% he didn’t like.”

Gorbachev’s apparent determination to yoke together two quite divergent plans worries pro-market economists. They remember how Gorbachev committed himself in an agreement with Yeltsin last August to a program of accelerated reform--also developed by Yavlinsky--but then backed away, switching to a far more conservative government plan after the military-industrial complex objected. The hybrid Gorbachev offered then proved a failure from its inception.

“The plans are not as contradictory as their proponents bill them,” Vitaly N. Ignatenko, the president’s press secretary, asserted last week. “Most of what they advocate is the same. The differences are in the timing, in the speed and in the scope. . . . There may be ways to harmonize most of the two proposals.”

But Gorbachev has many of the same worries, political as well as economic, this summer as he had last year.

A Cabinet rebellion, led by Pavlov, backed by the defense and interior ministers and KGB, and strongly supported by conservative lawmakers, showed how perilous his position could become. Yet, Yeltsin with his victory at the polls last month can bring Gorbachev popular support for reforms that would let him ignore the conservatives or even take his program to the people.

“We may get no money out of the Group of Seven, but we will get a decision out of Gorbachev,” one of his frustrated aides said. “He can’t go to London and waffle; that would destroy him with all the big players in the world.

“So, he will have to decide in which direction he wants to lead this country and assess whether the people will follow him.” Gorbachev may be right to worry about being too bold, the aide said, “but it’s even clearer that if he is again too timid (the people) won’t follow him at all.”