Nov 29, 1989

SOVIET UNION: "SORT OF SOCIALISM" AFTER PERESTROIKA

GENEVA, NOVEMBER 28 (BY CHAKRAVARTHI RAGHAVAN) The soviet political economy, after Perestroika, wills neither be a centrally planned command economy nor a privatised market one, but "a sort of socialism", according to a leading soviet personality involved in Perestroika.

Ivan D. Ivanov, the Deputy chairman of the Commission on External Economic Relations of the USSR Council of Ministers, gave this assessment Monday here in answering questions at a lecture by him on "economic reform in the Soviet Union".

The lecture under the auspices of the UNís Regional Economic Commission for Europe (EEC) was attended by a number of diplomats and economists from international organisations.

Other answers by Ivanov suggested that the Soviet Union might not be as keen now as reported earlier to join the international monetary Fund and the World Bank and while not seeking membership of GATT now would still like to pursue "other scenarios" to be associated with GATT.

The U.S., EEC and other leading capitalist economies are opposed to the Soviet Union either joining GATT now or even being an observer, and certainly not during the Uruguay Round processes under way.

The western nations hope to restructure international economic relations on a new basis, ensuring their domination over the world economy well into the next century, through the Uruguay Round.

On the Fund and the Bank, Ivanov confessed to being in a minority in the Soviet Union in seeing no advantage for the USSR to join the fund, but that the majority opinion was in favour of joining for political purposes.

Ivanov noted that if the Soviet Union were to join the fund, on the basis of its GNP it would have to be allotted a quota that would edge out U.K. and France out of the top five in the fund. He did not believe the countries concerned would be ready for it.

Also, he said, the Soviet Union would not be able to borrow from these institutions and hence there was no particular advantage.

The fund provides short-terms funds, under conditionality, to meet balance of payments problems.

All fund members are also eligible to draw temporarily a tranche of their contributions, by purchase of other currencies they need, but have to repay them within a short period.

While the industrial countries in the past have drawn on fund resources, after the Jamaica agreement and floating currency system, the major industrialised countries borrow from each other or from the market, so that the fund's lending now is mainly to third world countries, and the lending is used to push and force changes in third world economies.

Ivanov's comments suggested that the USSR had at one time perhaps hoped it could borrow at market rates from the bank, but now find it might not be possible to have such loans at market rates, and thus joining the fund in order to join the bank might not be so urgent on economic grounds.

Joining the fund is a pre-condition for joining the World Bank.

On the reform process, Ivanov explained various steps being taken under Perestroika: loosening the centrally planned command economy of the soviet union, through decentralised decision-making and allowing some market forces to operate, but with the state exercising control through regulations and other legal instruments.

At a recent meeting of nearly 700 soviet economists and managers, he said, there were two extreme views: one was "don't hurry but evolve existing system slowly", while the other was a radical one that "everything should be destroyed and something new put in place without a transition period".

Neither view, he said, prevailed, and the majority view was in favour of the middle way of adjustment to the new goals. "But the process of economic reform and management set in motion is irreversible and the question is only how to do it", he declared.

The final goal, he said, was the creation in the Soviet Union of enterprises, market-oriented and autonomous, but operating under strict social policy and state regulation, primarily through economic instruments like taxes, tariffs and legal instruments.

It would not be a completely unregulated market, but enterprises would be free to buy and sell and make free choice of clients, and the economy would be open to foreign competition through imports and joint ventures.

The Soviet Union sought an "open economy" where foreign economic relations grow faster than incomes and GNP - with foreign trade growing 1.2 times faster than the GNP.

There would also be qualitative changes to meet world standards and for new products to be competitive on global scale. Planning would be guided by the need for domestic efficiency and comparative advantage. Domestic and foreign prices would be brought in line, but gradually and not overnight.

While foreign trade would continue as now in convertible roubles with CMEA countries, and under special arrangements as now with a few (Yugoslavia, Finland, India and Bangladesh), trade with others would be in convertible currencies.

But there would no longer be country-by-country allocations.

The over 10,000 enterprises already authorised to enter into foreign economic relations could choose their own trade partners and destinations, and would be able to retain a portion of foreign earnings.

As for soviet relations in Europe, currently, in relations with CMEA countries, there was a high level of inter-governmental integration but not so much at enterprise levels. With Western Europe and EEC, there was enterprise level involvement but no intergovernmental relations.

In both cases there was need for balancing enterprise and intergovernmental relations.

The Soviet Union and the EEC and EURATOM had just completed the negotiations on commercial and economic relations, and this was now awaiting approval at political levels.

East European economies were undergoing restructuring, each at its own pace, and the final goal would be to have a unified CMEA market.

The Soviet Union had advised its CMEA partners that they should move step-by-step to free their mutual trade and have ultimately preferential trading arrangements.

Ivanov appeared to suggest that the pull of the western markets on some east Europeans would be balanced by the attractions of access to a large single market of the Soviet Union, functioning on market basis.

Though Ivanov did not mention its (...) the leverage, the Soviet Union is the major source of important raw materials for the east Europeans.

In terms of foreign economic relations, Ivanov said, the Soviet Union would gradually change its character of exports, and export more of manufactures.

For imports there would be more reliance on tariffs, and the USSR had already moved towards the new harmonised system of customs classifications.

Currently it was still enforcing export restrictions on such consumer items, including refrigerators, TV sets, etc., so as to meet domestic consumer demand. This was against GATT rules, but the Soviet Union could not do away with these immediately.

The Soviet Union had also to diversify its trade relations and have more relations with Asia.

Ivanov, a former official in UNCTAD and the UN system and an articulate speaker in English, however used several expressions which puzzled many in the audience, such as when he explained that the Soviet Union was moving towards 'wholesale trade" inside the country based on market forces.

He did not explain how replacement of administered prices throughout the economy by a system of market forces at wholesale trade level would end distortions or solve problems?

Other economists from the west note that in such a situation, with an internal market where it is monopolistic, one set of problems would just be replaced by another. But most economists of the west also admit they don't know enough even about the terminology used by the soviet side.

For several in the audience it was not clear whether the soviet had a clear perception of what they were doing and how to get to their goals, or they were just experimenting.

Ivanov was asked what model of transition the Soviet Union would follow, in the absence of any previous theory or experience for the transition from central planning to the market economy or as Fidel Castro had chosen to put it, transition from socialism to capitalism?

The soviet official drew attention to the various steps he had mentioned and then went to say that the final outcome would still "a sort of socialism".