MOSCOW, FEB. 18 -- The Soviet government today made public plans to raise prices on basic consumer items by an average of 60 percent, but Premier Valentin Pavlov said the state would compensate citizens to offset the vast majority of the price increases.
Pavlov's announcement to the Soviet legislature was the clearest evidence yet that President Mikhail Gorbachev's newly reorganized government has no apparent intention of freeing prices to market forces, a step many analysts here and abroad believe is necessary for a rapid transition from central economic planning to a market-led system.
Pavlov said increases in government welfare payments and other subsidies would offset nearly 85 percent of the price rises -- which free-market economists here said was its chief flaw. These economists said that while compensation may calm the tempers of long-suffering Soviet consumers, its effect on the economy ultimately will be to boost inflation without making more goods available in state-run stores. The Soviet Union now spends about a third of its budget to subsidize food and other consumer goods.
Price ceilings would be placed on such basic necessities as milk, meat, sugar and transport tickets, Pavlov said, while state subsidies to industries would be cut but not eliminated. He said prices for medicines and energy -- and to the audible delight of some members of the legislature, vodka -- would remain the same. Pavlov did not say when the measures would take effect, but officials indicated last week that March 1 is a likely date.
Earlier this month, the government instituted controversial joint military and police patrols in 400 Soviet cities, and municipal officials in Moscow and elsewhere now say they believe the patrols were planned to forestall social disturbances the price hikes could provoke among citizens already enraged by ever-lengthening shopping lines, surging inflation and a thriving black market.
Leaders of the Soviet Union's giant Russian republic -- which indicated last week that it would reject the government pricing plan -- along with former Gorbachev economic advisers Nikolai Petrakov and Stanislav Shatalin say they are convinced that the "artificial" price hikes and controls proposed by Pavlov will do little to ease the steady deterioration of the Soviet economy.
Alexander Pochinok, deputy chairman of the Russian legislature's budget committee, called Pavlov's plan "hopeless" and "radically wrong" and said it could lead to a 40 percent decline in the standard of living. Last year, when then-premier Nikolai Ryzhkov announced plans for price rises on goods ranging from bread to refrigerators, citizens went on furious buying binges, leaving store shelves empty for days afterward. Ryzhkov had to back down and was never able to regain his political standing.
Subsequently, Shatalin and Petrakov proposed a "500 Days Plan" for transition to a market economy that would have freed prices, sold off government-owned enterprises, made deep cuts in spending on military hardware and tightened the money supply. Gorbachev initially endorsed the plan, but then -- under pressure from hard-liners in the army and Communist Party -- reversed himself in mid-October and began a distinct shift toward more restrictive domestic policies.
The appointment of Pavlov as premier last month instead of someone more associated with radical economic thinking was a key event in leading many reformists to give up on Gorbachev as an engine of change. Economists such as Nikolai Shmelyev, who once supported and advised Gorbachev, are now allied with the Russian government of populist President Boris Yeltsin. Pavlov acknowledged today that he may have trouble selling the price plan to Russia and the other 14 Soviet republics.