Soviets Pushing Economic Union Modeled After EC : Reforms: Planners say that such a system would attract most of the 15 republics, independent or not.

Russian Federation Prime Minister Ivan S. Silayev on Tuesday outlined a new economic system for the Soviet Union modeled on the European Community and based on radical, free-market reforms of the national economy.

Silayev, who now heads a committee overseeing the economy, said that a common market, like that of the early European organization, would be the best replacement for the Soviet Union’s rapidly disintegrating, centrally planned economy. He predicted that most of the country’s 15 republics would join such a market.

“There is a very strong feeling that the economy is the issue that unites us all,” Silayev said, despite the determined moves toward independence by many of the republics and toward political and economic autonomy by others.

The web of economic relations that the republics are developing among themselves by negotiation is already replacing the old, centralized system of planning and management, Silayev said.

Even those republics, such as the three Baltic states, that do not intend to join the Soviet Union’s political successor, the proposed Union of Sovereign States, are interested in such an economic alliance, he added.

Russian President Boris N. Yeltsin told the Congress of People’s Deputies, the national Parliament, that most of the republics would soon sign the first agreement establishing this “common economic space.” Only one republic has not agreed so far, he said, without specifying which one.

Silayev added that members of Comecon, the old trading bloc of Communist countries, could also join, establishing a market that stretches from Central Europe to the Pacific Ocean.

Each republic could issue its own currency, Silayev added, but transactions between republics would be calculated in rubles or another currency, similar to the European Community’s weighted index of the currencies of 10 of its members. Each republic would also decide how much of its economy to put into private hands.

The plan draws heavily on a new proposal by Stanislav Shatalin, a leading pro-market economist, who last year put forward the “500-Day Program” for accelerating the country’s transition to a market economy. Initially accepted by Soviet President Mikhail S. Gorbachev and by Yeltsin, the program was defeated by conservative opposition.

Shatalin said later that the underlying concept for “an economic union of truly sovereign states” would quickly take hold after the Soviet Union recognizes the independence of the Baltic republics of Estonia, Latvia and Lithuania and other republics wishing to secede.

“Everything will fall into place because the situation will be clear and decisions can then be made,” Shatalin said.

Silayev said that all the political obstacles to fundamental reforms were overcome when the rightist coup d’etat collapsed, but economic planners must still decide which measures to propose.

Former Prime Minister Valentin S. Pavlov, one of the conservatives now charged with treason for his part in the failed effort to overthrow Gorbachev, had undercut reformers’ efforts to decentralize the economy and replace planning with the market forces of supply and demand.

“The old structures . . . not only braked but did not permit us to turn things around,” Silayev told a press conference. “We can say today almost nothing is prohibiting us from realizing our program.”

Even the central government’s giant bureaucracy for managing the economy is being rapidly reduced by Silayev’s committee, which was given full authority over the economy in the wake of the coup. The old Council of Ministers, which had sometimes numbered more than 100 and was dominated by officials who ran the country’s economy, “must not exist any longer,” the Russian prime minister said.

Russia, largest and richest of the Soviet republics, intends to accelerate the privatization of its state-owned enterprises, beginning with the sale or rental of stores, warehouses and transportation to private businessmen, Silayev said.

But Grigory A. Yavlinsky, a radical free-market economist and deputy chairman of Silayev’s committee, said even bolder steps are needed to bring about the economy’s liberalization after seven decades of state management.

“One of the lessons of the reforms is that delay is deadly,” Yavlinsky said. “The failure of the coup created an opportunity for bold moves, and we should make them now.”

Silayev said that both the Soviet Union and the Russian Federation are counting heavily on Western assistance.

“We do not think about achieving this program without the cooperation of the West,” he said. “The West is already reconsidering its approaches to granting us aid. The aid will grow.”

Silayev added, however, that he wants to avoid the sort of “shock therapy” that Poland and some other East European countries had used to move from socialism toward capitalism for fear that Soviet society cannot take another shock after last month’s abortive coup and the political upheaval that has followed.

Independent economists say the Soviet economy in dire straits. It is certain to shrink at least 17% this year, they say, and its trade deficit is likely to hit $10 billion. The country’s foreign debt is now more than $64 billion.

The country’s money supply is ballooning beyond all control, increasing 15% in the last two months. The state budget deficit after eight months is twice what it was to be for the entire year. Inflation, as a result, is conservatively estimated at an annual rate of 100%--and some economists put the real rate at close to 200%.

In these circumstances, Silayev told the emergency session of the Congress of People’s Deputies, he felt that “shock therapy” might prove the final blow to the staggering economy.

Silayev said his committee had made the purchase and distribution of grain and other agricultural products its top priority, fearing that farmers might decide to hold back their produce because of inflation and the virtual worthlessness of the country’s money.

Yuri Luzkhov, another Silayev deputy, said the committee planned to encourage enterprises to use their foreign exchange holdings to import food from abroad as one emergency measure.

“Shock therapy” usually includes immediate convertibility of a country’s currency, the privatization of state enterprises and introduction of market pricing. The initial impact falls heavily on the workers through higher prices, widespread unemployment and lower living standards.

Poland began such shock treatment in January, 1990, by making its currency convertible to dry up the black market and help check inflation. But the program also left hundreds of thousands of Poles without jobs.