(D)-Suppressed to avoid disclosing data of individual companies

(*)-Under $500,000

Source: U.S. Department of Commerce, Survey of Current Business August 1990, Vol. 70, No. 8, Table 13

* Section 8 is an abridged version of Section 6 of the Turkey country report included in the Department of State's Country Reports on Human Rights Practices for 1990, submitted to the Congress January 31, 1991. For a comprehensive discussion of worker rights, please refer to that report.

1/ In 1988, the U.S.S.R. for the first time published data on Soviet economic growth using the Western concept of GNP. Its estimate for 1987 in current rubles is best compared with CIA's estimate of 796 billion rubles in 1982 "established" prices. The implicit U.S.S.R GNP deflator of 0.8 percent during 1983-87 probably grossly understates the rate of inflation in the Soviet economy. The U.S.S.R.'s initial published GNP estimates were for growth only, and for the years 1986 and 1987 (4.6 percent and 3.3 percent, respectively). These growth rates were subsequently revised downward (to 4.1 percent and 3.1 percent).

2/ The ruble estimate for GNP was converted to 1982 geometric-mean (GM) U.S. dollars by multiplying the ruble value of estimated GNP by the geometric mean of two

dollar-ruble ratios--one weighted with U.S. price weights and the other with Soviet weights. The U.S. GNP deflator was then applied to convert 1982 GM dollars to 1989 GM dollars.

3/ Based on estimates in 1982 rubles at factor cost. 4/ The U.S.S.R. reports investment in 1984 prices, while national income produced is reported in current rubles. 5/ Errors and ommissions include Soviet hard-currency aid to and trade with other communist countries, trade credits extended to finance Soviet exports to developed countries, and other nonspecified hard-currency expenditures, as well as errors and omissions in other line items of the balance-of-payments accounts.

1. General Policy Framework

The Soviet government in 1990 struggled to formulate an economic reform plan that would win at least grudging acceptance by the public as well as by the republic authorities. The money supply grew, fueled by wage increases, larger pension payments and continued easy credit for enterprises. As the ruble continued to lose its value, enterprises and regions refused to meet their contractual obligations to the state, preferring barter arrangements with new suppliers who could provide the goods they needed. Shortages of most items developed, and overall production fell. The public faced the worst consumer goods shortages since World War II.

UNION OF SOVIET SOCIALIST REPUBLICS

By the end of the year, the government had rejected calls for radical reform that would have transferred authority from the center to the republics and begun a sweeping reduction in the state's role in the economy. It appeared to settle instead for more gradual reform, which critics argued would not succeed, and relied increasingly on administrative methods to battle shortages and shortfalls in production. It also was drawn into a "war of laws" with republic governments seeking to expand their authority.

The Soviets continued their multiple, fixed exchange rate system throughout 1990. While the commercial rate was devalued by a factor of three before year-end, its final value was still only a tenth of the black market rate. Although full convertibility is the stated goal, the Soviet government apparently intends to retain this rate structure during the current "transition period" of economic stabilization and reforms.

The arrearages problems described in Section 4, along with a decline in oil exports and lower credit ratings, caused the central government to seek to re-establish control over available reserves of foreign currency. A decree issued November 2 established an all-union currency fund, and required state enterprises (but not joint ventures) to surrender significant percentages of their hard currency earnings to fund debt service and other hard currency costs. This decree will reduce by almost half the already limited amounts of hard currency earnings enterprises were to have at their disposal.

Gorbachev's decree simplified and devalued the commercial rate from roughly 0.6 to 1.8 rubles/dollar, thus making imports more expensive, and eliminating a confusing welter of existing exchange rates. The Soviet government aims to extend the use of the new commercial rate while phasing out the old official rate of 0.6 rubles/dollar. In addition, two other official rates exist: the tourist rate (6 rubles/dollar) and the foreign currency auction rate (around 20 rubles/dollar). The illegal black market rate was 20-30 rubles/dollar.

The Soviet authorities held a number of foreign currency auctions at the Bank for Foreign Economic Relations (Vneshekonombank) in which Soviet enterprises could apply to purchase or sell any freely convertible currency, necessary for production activities, for Soviet rubles. Throughout the year, demand for dollars greatly exceeded supply; the exchange rate hovered around 20 rubles/dollar, reportedly because bank officials refused to allow it to rise above that level. This system is to be expanded in 1991, but it is unclear how much hard currency the government will provide to support its operations.

The year 1990 saw a breakdown of the USSR's administrativecommand system without, however, any significant replacement by market mechanisms. Inflation and the undefined

7

UNION OF SOVIET SOCIALIST REPUBLICS

relationship between the center and the republics posed the key obstacles to economic reform. Inflation destroyed production and commercial links throughout the economy, as suppliers had no incentive to sell for low, fixed prices, particularly when there was nothing for them to buy.

Republic governments tried to solve this problem by reaching inter-regional and inter-republic barter agreements for the most important commodities; the central government by issuing decrees requiring compliance with the state plan and contract system. The conflicting claims of various levels of government in turn contributed to the confusion at the level of the enterprises.

The government wrestled throughout the year with a variety of economic reform programs. In May, it announced a half-hearted reform package which included a hike in bread prices--the resulting panic in Moscow swept the stores clean of bread and led to rationing. During the summer, various alternatives were debated, including the more radical 500 Day plan espoused by reform economist Stanislav Shatalin (and RSFSR Supreme Soviet Chairman Yeltsin) which called for widespread decentralization of the economy, decontrol of prices and privatization of enterprises.

While initially voicing support for the 500 Day plan, President Gorbachev presented the Supreme Soviet in October with a plan, which it approved, that synthesized the Shatalin plan and the more gradual approach favored by the government. In the final months of the year, the government backed away from market reform, instead demanding compliance with the plan, reducing the autonomy of enterprises and delaying privatization.

Thus, while on the whole there was some recognition of the need for market reform, at the end of 1990 housing, shops and other property still remained overwhelmingly in state hands, and most production was, at least in theory, covered by the state plan. Nor had any significant investment been channeled into key sectors such as energy and transportation, whose deterioration further aggravated the breakdown in supplies.

4. Debt Management Policies

Formerly an excellent credit risk in the eyes of Western creditors, the Soviets now are viewed as a moderate risk. Limited hard currency reserves, pessimistic forecasts of future hard currency earnings and rising hard currency debt, now estimated to be approximately $52 billion, as well as concerns about the political future and economic health of the country, have led to a more cautious outlook on the part of Western creditors. In addition, arrearages of Soviet commercial and industrial organizations to Western businesses of some $5 billion, including more than $100 million to U.S. firms, hamper credit and business relationships. The Soviet debt service ratio in 1990 was estimated at 23.8 percent, up from 19.4 percent in 1988. Although historically a conservative borrower, the Soviet Union is expected to face increased external financing requirements as a result of a declining trade balance.