Soviet Union-GORBACHEV'S ECONOMIC REFORMS

When Gorbachev delivered his report on the CPSU's economic policy on June 12, 1985, he noted that growth in exports, particularly machinery and equipment, was slow because the poor quality of Soviet goods prohibited them from being competitive on the world market. In the next three years, Gorbachev introduced many changes that would enable the foreign trade complex to better support his economic policy of acceleration. By May 1988, the structure of the Soviet foreign trade complex had been changed, and operations had been dramatically overhauled (see Structural Reforms, 1986 to Mid-1988 , this ch.).

The price reform called for by the Twenty-Seventh Party Congress was an important step in improving Soviet international economic involvement. Soviet officials admitted that pricing was ""economically unsubstantiated"" and ""unrealistic."" They understood that although a fully convertible ruble would not be possible for some time, prices that more accurately reflected production costs, supply and demand, and world market prices were essential for developing a convertible currency. The nonconvertible ruble and the Soviet pricing system discouraged Western businessmen who could not accurately project production costs nor easily convert their ruble profits.

The new joint venture law, passed on January 13, 1987, opened up the Soviet economy to foreign participation, particularly in manufacturing. It was believed that the experience gained in such ventures would facilitate integration into the world economy. Specifically, through upgraded production processes, the Soviet Union could export more competitive manufactured goods and decrease its dependency on energy and raw materials to earn hard currency.

In August 1987, the Soviet Union formally requested observer status in the General Agreement on Tariffs and Trade ( GATT--see Glossary). The Soviet Union also expressed its desire to join other international economic organizations and establish contacts with other regional groups. A major step in this direction occurred in 1988 when the Soviet Union signed a normalization agreement with the EEC. The Soviet government, however, professed no interest in joining the World Bank (see Glossary) or the International Monetary Fund ( IMF--see Glossary). Although Soviet officials claimed that the international monetary system ""was not managed properly,"" it is more likely that IMF and World Bank regulations were the obstacles: both institutions required that members' currencies be freely convertible and that members provide accurate information concerning gold sales and economic performance.

Gorbachev transformed the role of foreign trade in the Soviet economy. Whereas imports previously were regarded exclusively as a vehicle to compensate for difficulties in the short term, Soviet economists under Gorbachev declared that imports should be regarded as alternatives to domestic investment and that exports should serve to gauge the technical level of domestic production. Foreign economic ties were to support growth in production beyond the capacities of the domestic economy. The Soviet Union could thus take a place in the world market that was commensurate with its scientific and technical progress and political weight.

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Numerous English-language sources cover aspects of Soviet foreign trade. The foreign economic relations section of volume two of the report submitted to the United States Congress Joint Economic Committee in November 1987 entitled Gorbachev's Economic Plans is particularly informative on Soviet-American trade, the Soviet Union's debt situation, and Soviet economic involvement in the Third World. H. Stephen Gardner's Soviet Foreign Trade very clearly lays out the institutional and political foundations for Soviet foreign economic decision making through 1980. Two chapters, one by Wilfried Czerniejewicz and another by Kazuo Ogawa, in Siberia and the Soviet Far East describe trade relations between the Soviet Union and Western Europe and the Soviet Union and Japan. Although it is dated, Soviet Foreign Trade by Glen Alden Smith is one of the best references covering all aspects of Soviet trade.

An accurate source of Soviet trade data is the Central Intelligence Agency's Handbook of Economic Statistics, published in September of each year. Jerry F. Hough's Opening Up the Soviet Economy devotes one chapter to Gorbachev's foreign trade reforms and another to the way American businessmen and government officials should view these changes. (For further information and complete citations, see Bibliography.)

Data as of May 1989