U.S. proposes modest aid to reform Soviet economy

THE BALTIMORE SUN

WASHINGTON -- The United States has proposed a stage-by-stage economic reform plan to the Soviet Union that taps nascent market forces, encourages conversion of defense industries to civilian uses and could draw on tens of billions of dollars in available aid and credits from the West, according to a senior U.S. official.

The plan, outlined in meetings last week between top Bush administration officials and a Soviet delegation led by Yevgeny M. Primakov, an adviser to President Mikhail S. Gorbachev, steers clear of a "grand bargain" linking economic reforms with promises of vast sums of Western aid.

It would instead start with modest steps, including agricultural credits, special associate membership in the International Monetary Fund, conversion of the Soviets' defense industry, improvements in their food-distribution system and advice on how better to exploit their energy resources.

As reforms take shape, large sums of already available aid and credits from the European Economic Community and South Korea, among other sources -- some of which are now being wasted -- could be successfully integrated into the plan, the official said.

President Bush said Friday that he had had a "very positive" session with Mr. Primakov, who officials here said reacted favorably to the U.S. ideas.

If a superpower summit is held late this month as originally planned -- which the White House has said is still a possibility -- the package could presumably be firmed up in time for both the Soviets and the seven Western industrialized powers (the so-called Group of Seven, or G-7) to agree to it in principle before the annual economic summit in July.

Mr. Primakov arrived here last week with an "anti-crisis" plan of reforms linked to Western aid that U.S. officials said fell far short of what was required to convert the collapsing Soviet economy to the free market.

In talks with IMF Executive Director Michel Camdessus, he reportedly spoke of Western aid of up to $50 billion a year for five years.

U.S. officials, saying the numbers being tossed about lack a rational basis, fear that discussion of such huge sums is unrealistic because it would pose intractable political problems both for the United States and other Western powers and for Mr. Gorbachev himself.

"At the first level, a 'grand bargain' is a political fantasy for both sides," said Robert B. Zoellick, who helped develop the U.S. counterproposal.

For the United States, any aid on that magnitude would require Soviet concessions on defense spending and support for Cuba, as well as freedom for secessionist Baltic republics, U.S. officials say.

This, in turn, would put Mr. Gorbachev in a risky position politically.

"Gorbachev can't sell the Baltics for $5 billion," a U.S. official said. In addition, firmly tying reforms to a "pot of gold" from the West could doom both the reforms and their advocates if large sums were not forthcoming, the official said.

Officials said there was a difference in approach both within the Soviet delegation and among U.S. academic experts seeking to help the Soviets prepare an economic reform package.

Grigory A. Yavlinsky, the Russian economist who accompanied Mr. Primakov at most of last week's meetings, believes that it is important to focus on economic reforms, rather than aid. Others want reforms and aid to be more closely linked.

Among Harvard economists working with Mr. Yavlinsky in preparing a package, Jeffrey Sachs appears to be the strongest advocate of an approach promising large sums of aid.

The Bush administration plan would focus on these areas:

* Developing an efficient food-distribution system that encourages Soviet food cooperatives, which have blossomed despite huge obstacles. Possibilities would include turning vehicles and plots of land over to farmers.

* Dispatching private U.S. experts to advise the Soviet energy industry.

* Converting defense manufacturing to civilian uses. This would keep such industries and the employment they offer largely intact while fulfilling the U.S. aim of cutbacks in Soviet defense spending, officials said.

"The Soviet Union is not Biafra. It is rich in resources and skilled people," a U.S. official said.

Associate membership in the IMF would entitle the Soviets initially to the expertise of the international lending agency. They would need full membership to draw any money, a status that also would require the Soviets to put money into the fund.

President Bush earnestly wants to bolster Mr. Gorbachev, the man who freed Eastern Europe and who is now fighting to prevent the economic collapse and disintegration of the Soviet Union.

But Mr. Bush needs evidence that the Soviets are prepared to dismantle their centralized economy and allow market forces to reign, a shift that promises to disrupt the existing Soviet power structure radically and deepen consumers' pain for some time.

"We've signaled a strong interest in being supportive if they move forward with market reforms," a senior U.S. official said.

Mr. Bush is now open-minded about inviting President Gorbachev to the July summit of seven industrialized countries, officials say. And it appears likely that he would be willing to grant the Soviets most-favored-nation trade status for the few Soviet exports Americans are now prepared to buy.

But debate continues on the extent to which Mr. Gorbachev will be able to launch serious economic reform without assurance that large sums of Western aid are forthcoming to cushion the painful transition.

Mr. Sachs, the Harvard economist who advised Poland in its strong reform efforts, argues that without such a Western

commitment, Mr. Gorbachev won't be able to overcome the opposition from hard-liners in the Communist Party and military.

"We're playing coy," Mr. Sachs said of the United States. And this weakens the democratic, reforming forces in the Soviet Union in their battle with the hard-liners.

The Harvard plan, the bulk of which may be finished this week, he said, calls for Western aid to be administered by the World Bank, International Monetary Fund and European Bank for Reconstruction and Development, and to be rigorously tied to reforms.

"The money comes out in dribs and drabs, alongside reforms," he said. The sums are big -- about $30 billion a year for the first three years -- but would be borne by the industrialized world as a whole. The U.S. share would be about $3 billion a year, he said.

With his April 23 agreement on power-sharing and economic cooperation with leaders of nine Soviet republics, Mr. Gorbachev signaled to senior U.S. officials that he was "swinging back very forcefully to the reform path," one official said last week. But the pact needs to be followed by an all-union treaty.

"I think we will be able to tell a lot by how this debate on economic reform turns out," said the administration official, who was traveling aboard Secretary of State James A. Baker III's plane last week. "He is going to have to tack, and he can't be simon-pure on the establishment of a market economy, because he's going to have to keep a sufficient political base to make things happen."

Even with a new political spine in the Kremlin and vast technical and financial help from the West, the question remains whether it's too late to save Mr. Gorbachev or his union.

Retiring CIA Director William H. Webster suggested last week that the demise of both may be inevitable. "Gorbachev's future is increasingly uncertain," he said.

But administration policy-makers, with perhaps a surer political sense, aren't writing Mr. Gorbachev off. Said one: "He continues to seem to maneuver in ways that give him additional lives."

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