Gorbachev Gives Bush Assurance on Soviet Reform

Soviet President Mikhail S. Gorbachev, preparing for a key economic meeting with Western leaders in London, sent President Bush a letter signaling that he has embraced open markets and other painful reforms for his country’s crippled economy, U.S. officials said Friday.

While it offered little in the way of fresh ideas or detailed prescriptions for change, the letter seemed to have reassured U.S. officials that Gorbachev will not use the historic London meeting to do what they had feared most: put them on the spot with a request for massive aid before he is well on the way to making the reforms that could transform his nation’s centrally planned economy into one driven by the market forces of capitalism.

“It’s a fantastic letter,” President Bush said of the correspondence, which has not been made public.

In Moscow, Gorbachev offered his own preview of his appeal for Western economic assistance, saying his government would be willing to allow foreigners to invest in the conversion of the Soviet Union’s secretive defense industries--”our holy of holies”--to civilian production.

Gorbachev has been invited to meet with the heads of government of the leading industrial democracies--the United States, Germany, Japan, Britain, France, Canada and Italy--after those Western officials hold their annual economic summit beginning Monday.

While the seven nations have been careful not to include Gorbachev in the three-day summit itself, their meeting with the Soviet leader nonetheless will overshadow the rest of their agenda. Many analysts say Gorbachev’s political survival hinges on convincing his own citizens that he can deliver Western assistance to stave off an economic collapse.

But economists caution that any aid will be wasted unless it is preceded by the sort of economic reforms undertaken by Eastern Europe. Those reforms have proven even more painful than expected, causing inflation to skyrocket and production to plummet.

Treasury Secretary Nicholas F. Brady said Gorbachev’s letter demonstrates how much the Soviet leader’s thinking has evolved in recent months.

“He started off with fond hopes for a grand bargain and a pot of gold, and look how it’s come,” Brady said. “He put forward a letter that’s thoughtful. (It) has some things in it which I’m sure will not be acted on, but it shows great understanding of the process by which what he wants to do can ultimately take place.”

Brady said the letter outlined a number of measures that have been urged by Western institutions as well as by reform-minded economists within the Soviet Union.

“It does talk about open markets, price stabilization, demilitarization and the like,” Brady said.

Gorbachev also mentioned the idea of having Western governments contribute to a currency stabilization fund for the Soviet Union, as they did for Poland, Brady said.

The Soviet leader told reporters in Moscow that allowing Western investment in the demilitarization of the Soviet defense industry “is perhaps the best proof of how we are changing and what we are prepared for.”

“We’ll open the gates of our holy of holies,” he said.

Soviet economists assert that the conversion of the country’s massive defense sector to production of civilian goods could be an essential element of economic reform by shifting some of the best minds, workers and equipment to the task of satisfying ravenous consumer demand.

But revamping factories and retraining workers requires large infusions of capital, and Gorbachev appears to be on the verge of offering Western businesses new investment opportunities as a way of helping finance the defense industry’s conversion.

Although Gorbachev gave no details about his proposals, aides have said that his presentation next Wednesday at the London meeting of the Group of Seven will focus in part on “the demilitarization of the Soviet economy.”

In the letter he sent to Bush on Thursday, Gorbachev is said to have claimed that his country’s defense spending had been cut recently by 29%, but U.S. officials questioned that figure.

While estimates vary, the Soviet Union is believed to devote a far higher percentage of its national income to the military than the United States. Some economists believe that the Soviet defense burden could account for as much as 25% of its gross national product.

Gorbachev has pledged to change that and has acknowledged that part of his impetus in ending the Cold War was that the country could no longer afford to continue it.

Although denying that he would go to London “on his knees,” Gorbachev said he realizes that if the Soviet Union wants to win the broad Western investment and aid that it needs, it has to play by “the rules of the game.”

“We have to change before we can be included in the world economy,” he said.

Pressed by reporters on what concrete results he expects to obtain at the London meeting, Gorbachev, relaxed and jovial but looking somewhat pale, said only that if he gains the support he seeks, “some mechanisms and working groups will emerge to continue work.”

Capping efforts to lay the groundwork for his London presentation by portraying the Soviet Union as stable enough to be worthy of investment, Gorbachev stressed that the Soviet Parliament and representatives of nine of the 15 Soviet republics back his economic proposals.

“They have taken my information into consideration and supported my ideas,” he said of the Parliament leadership after meeting with them Friday morning.

Gorbachev also received a boost Friday for the new treaty he is seeking to hold the Soviet Union together when the country’s legislature, the Supreme Soviet, gave preliminary approval to a draft of the Union Treaty.

As the blueprint for the new federal structure, the treaty would allow republics much more independence than under the old centralized system, restricting the central government’s functions largely to defense, energy, transportation and other limited spheres.

The Supreme Soviet, winding up its last day before a summer recess, voted 307 to 11 with 18 abstentions to approve the treaty.

Six republics--Lithuania, Latvia, Estonia, Georgia, Armenia and Moldova--have not participated in drafting the treaty and probably will not sign.

The Supreme Soviet recommended mildly that those republics “study the text of the Union Treaty and try to find ways of preserving friendly ties with the renewed federation.”

Tumulty reported from Washington and Goldberg from Moscow.