Price increases on food declared by Gorbachev

March 20, 1991|By Scott Shane | Scott Shane,Moscow Bureau of The Sun

MOSCOW -- Despite a worsening strike by coal miners that appears to be gaining broad political support, President Mikhail S. Gorbachev ordered sharp price increases yesterday in food and consumer goods to begin in two weeks.

With a decree making official what aides already had outlined, Mr. Gorbachev took on the most explosive issue of Soviet economic reform -- ending once and for all the illusion that socialism means low, fixed prices for necessities.

"Without reform of pricing, there can be no kind of market," Prime Minister Valentin S. Pavlov, who helped design the plan, told television viewers last night.

He said that state subsidies to keep basic foods and other goods at the level of the early 1960s were costing 225 billion rubles a year. By reducing or dropping the subsidies and ultimately giving the same money directly to workers in the form of wages, the government hopes to stimulate harder, more efficient labor.

Under the plan, which is to take effect April 2, a loaf of bread will triple in price from 20 to 60 kopecks. A kilogram of beef will rise from 2 rubles to 7 rubles. A child's knitted dress will climb from 12 rubles to 62 rubles. (One ruble, or 100 kopecks, is valued at 18 cents to $1.80 at the various official rates and at about 5 cents on the black market.)

Direct compensation payments to citizens, aimed at softening the blow of the new prices, will begin today. The payments will average 60 rubles per person each month, officials said.

Some economists criticize the price-increase plan, which is very similar to one announced last May and later scrubbed by then-Prime Minister Nikolai I. Ryzhkov. They fault it for leaving prices fixed -- though at a higher level -- on 60 percent of goods. They urge instead a faster shift to free-market prices to create real supply-and-demand forces in this distorted economy.

Western experts have for years singled out state-subsidized prices as the major obstacle to any real improvement in Soviet economic performance. Prices set by bureaucrats have for decades given the wrong signals to producers as to what to make, leading to severe shortages.

Virtually since coming to office in 1985, Mr. Gorbachev has indicated that he agreed with such a diagnosis, but he repeatedly has postponed price reform as politically too risky.

Now conditions have changed. Over the past five years, a flourishing black market with sky-high prices and a relatively small but highly visible legal private sector has conveyed the message that many coveted goods can be had if a customer is ready to pay several times the state price.

In recent months, in Moscow and several other cities, local officials desperate for food supplies have loosened controls, allowing "contract prices" for food and other items in state stores. One result in Moscow is that eggs -- hard to find at all a few months ago -- are now widely available, but usually at two to three times the state price.

Mr. Gorbachev and Mr. Pavlov clearly are hoping the shock of FTC the price increases will be softened by the earlier introduction of contract prices alongside state prices and by the resulting confusion over prices.

With some exaggeration, Mr. Pavlov said that "often when you name these [official state] prices it prompts only an ironic smile, because people for a long time have not seen such prices on the store shelves."

Nonetheless, boosting state prices is the biggest risk Mr. Gorbachev has taken with public opinion in his six years in office. The fact that the miners' strike is already under way -- with resignation of the president and the prime minister among the miners' demands -- greatly compounds the risk.

At a news conference yesterday, strike leaders said 165 of the nation's roughly 500 coal mines have been idled, with nearly 300,000 miners off the job. Some mines have been out since March 1, and reduced coal supplies have brought steel plants and other industries to the brink of shutdown.

Officials of the Independent Miners' Union said they were organizing a national strike committee to coordinate action by miners scattered over the length and breadth of the country. The biggest coal fields are in the Kuzbas in Western Siberia, the Donbas in the Ukraine, Vorkuta in the far north and Karaganda in Kazakhstan.

Mr. Gorbachev, who has refused to meet a delegation of striking miners, received a group of elected officials yesterday from the Kuzbas, whose miners were the first to demand his resignation. One participant in the meeting said Mr. Gorbachev made it clear he had no intention of stepping down.

The Tass news agency reported yesterday that five of the 10 coal mines in the Chelyabinsk region in the southern Ural Mountains had joined the strike, adding yet another region to the walkout.

Democratic activists, frustrated by their failure to get their programs passed by Communist-dominated parliaments and alarmed by Mr. Gorbachev's increasing reliance on the KGB and the military, are seizing upon the coal strike as a political rallying point.

Democratic Russia, the reform coalition in the largest Soviet republic, appealed to the public yesterday to transfer one day's earnings to a bank account set up to support the strikers, the Interfax news agency said. Muscovites are bringing non-perishable food to a number of collection points for the miners.

Independent union leaders, who scorn the Communist-controlled official trade unions, said authorities in various regions had filed suit against strikers, had threatened them with arrest and had cut their phone and telex connections.

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