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Draft Treaty Touts Private Property as Basis for Soviet Union's Economy

Wall Street Journal,

By PETER GUMBEL Staff Writer

September 12, 1991

MOSCOW - The Soviet Union would make private property the basis of its economy and take steps to ensure repayment of its foreign debt under a new economic treaty being proposed by Grigory Yavlinsky, deputy head of an interim committee currently running the Soviet economy.

Mr. Yavlinsky's draft treaty amounts to the more comprehensive - although not the only - plan for rearranging the Soviet economic system following the failure of last month's coup and the collapse of hard-line communism.

It seeks to lay the foundations of a Soviet-style common market, in which participating individual republics would form a customs and banking union and cooperate closely on fiscal, monetary and social policy. The ruble would remain the unifying currency but, under certain conditions, republics could print their own money. All participants would agree not to hinder the free flow of goods and services between them, and to lift obstacles to private enterprise.

Political Pact's Counterpart

The proposed treaty amounts to the economic counterpart of a political pact - which parliament approved last week - between the leaders of 10 republics and President Mikhail Gorbachev. However, there is one crucial difference: Republics that don't want to participate in the new political union could still join the proposed economic agreement, either as full or as associate members.

The 20-page text has been submitted to all 15 republics, including the now-independent Baltic states. It is likely to be discussed in detail at a meeting of the ruling State Council on Monday. Copies have also been sent to leading Western nations.

Mr. Yavlinsky - a 39-year-old former Russian government official who has emerged as the nation's pre-eminent economic thinker - said he believes that republics of the "former U.S.S.R." will have to cooperate closely on economic matters if they are to survive, let alone pull themselves out of the current slump.

"It's not a choice, but a necessity. This much is clear to everyone," Mr. Yavlinsky said. He estimates that Soviet industrial production has fallen about 15% so far this year, while inflation is now running at about 2% to 3% each week.

Unlike some other plans Mr. Yavlinsky has drafted - including one with Harvard University - his proposed agreement doesn't claim to resolve any economic problems afflicting the Soviet Union. If republican leaders agree to sign the initial treaty, however, more specific accords would be worked out to establish and regulate a new banking system, a regional development fund and a national budget, among other things.

Mr. Yavlinsky said he thinks the outline agreement could be approved within the next six weeks. The other, more detailed agreements would take between three months and a year.

Mr. Gorbachev apparently endorses at least parts of the plan. On Wednesday he told U.S. Secretary of State James Baker that "urgent short-term problems (in the economy) have to be dealt with in a matter of weeks." And the Soviet president stressed that he hoped to press ahead with making the ruble a convertible currency in order to attract foreign investment.

So far, republican leaders haven't responded formally to Mr. Yavlinsky's draft, which they were given on Friday. But officials said the all-important republic of Russia appeared to be supportive, and others have also sounded positive. Mr. Yavlinsky said the question of Western aid to the Soviet Union would only become relevant once it was known whether his treaty, or a similar arrangement, was going to be signed. Even so, Mr. Baker told reporters that the U.S. might be willing to provide humanitarian and technical assistance to the U.S.S.R. even before its reform intentions are clear.

Besides Mr. Yavlinsky's draft, at least two other economic plans are being circulated. Support for them is even harder to determine. One plan was drafted by Stanislav Shatalin, a respected economist who worked with Mr. Yavlinsky last year. Mr. Shatalin's plan proposes an extremely loose "convention" that would merely require participating republics to harmonize some of their economic regulations. For example, they wouldn't have to agree on a single monetary unit or tax policy.

The other proposal was drafted by the Russian Republic's minister of economics Yevgeny Saburov. Essentially, it would place Russia in the driver's seal of economic reform, requiring other republics to follow suit if they wanted to continue dealing with the giant republic.

Mr. Yavlinsky's proposed treaty establishes a level playing field for all. In contrast with the other plans, it also gives details of a transitional period, in which participating republics would work together to scale back fixed prices and state production orders - two aspects of the centrally planned economy that continue to dominate Soviet life.

Particular care has been taken with the question of Western investment and Soviet foreign debt, which now totals almost $70 billion. Anxious not to scare away potential sources of aid, Mr. Yavlinsky's draft "guarantees to fulfill all foreign trade obligations," and would set up a special accord concerning foreign debt.

Until the ruble becomes convertible, participating republics would agree to maintain a centralized hard-currency fund to service foreign debt. Such a provision is likely to reassure Western bankers, who have been alarmed by talk that Soviet foreign debt might be divided up among republics with little or no guarantee of repayment. Mr. Yavlinsky also doesn't appear to support any move by the Soviet Union to reschedule its foreign debt. "I would prefer measures that wouldn't damage the interests of our creditors," he said.