A Wrenching Tug Of War With Moscow

If only all choices were so easy. Kerst is one of the first factories in Moscow to privatize. According to federal Soviet law, the maker of building materials must pay taxes equal to 45% of its net revenues this year. If it somehow turns a profit anyway, two-thirds of the earnings go to the state. The Russian republic's new tax policies are generous by comparison: The republic claims only 38% of net revenues and half of any profits. Whose laws does Kerst plan to obey? "Enterprises that are strong and have the support of their workers will follow the Russian laws," says Director Viktor Y. Makarov.

That's the kind of breakaway President Mikhail Gorbachev can expect throughout the Soviet Union in 1991, a year that he predicts will decide "the fate of our multinational state." And despite the new presidential powers that Gorbachev has amassed, it's more apparent that the Soviet leader's ability to set the country's political and economic agenda is waning. While Gorbachev is stuck juggling the left and right wings in Moscow, momentum for change is growing stronger in republican and local governments. They will either lead the country into even more chaos or set the stage for true reform. The key is for Gorbachev to abandon his insistence on centralized economic control.

The greatest pressure is coming from the Russian republic, which is trying to wrest control of the economy away from Gorbachev. Not only did the Russian parliament approve separate tax policies but it also dealt Gorbachev a devastating blow on Dec. 27 by slashing its contribution to the national budget by 85%. The Russians say they render more tax money than any other republic, yet the central government has never accounted for the proceeds. "The Russian Federation will no longer automatically remit money to the federal budget," says Sergei Krasavchenko, head of the Russian parliament's Committee on Economic Reform & Ownership.

BIG TEST. Unless the dispute is resolved, the damage could be enormous. If the Russians fulfill their threat to withhold payment, "millions of people will be left without salaries," says Mikhail Bocharov, a radical deputy who sits in both the national and Russian parliaments. Also, transport will stop, institutes and factories will close down, and the economy will grind to a halt within a few weeks. Coming to terms with the Russian republic is a crucial test for Gorbachev. At worst, he could risk a parliamentary standoff by issuing a decree canceling the Russian republic's decision. A happier outcome would be for him to finally accept the idea of a decentralized Soviet Union.

At that point, Moscow and the republics could make strides on a new union treaty. Few of the leaders of the country's 15 republics like Gorbachev's version, which keeps much power in the hands of the central government. So the republics are simply acting as if the union no longer exists and are working on agreements among themselves. Russia, for example, has signed bilateral treaties covering economic and political relations with Byelorussia, Kazakhstan, Moldavia, and the Ukraine. Such deals could form the basis for a new agreement governing trade between republics.

They could, for example, facilitate better distribution of food. Widespread shortages now hamper large cities such as Moscow and Leningrad. Yet food-rich provincial centers such as Alma Ata in Kazakhstan and Kislovodsk in the northern Caucasus have ample supplies of moderately priced meat and produce. The reason: Local farmers have broken from Moscow's control and are refusing to send most of their products to big cities at cheap prices.

MASTER TACTICIAN. In a last-ditch effort to keep central control, Gorbachev could turn to crackdowns by the police, KGB, and army. Yet that would jeopardize up to $17 billion in credits that the International Monetary Fund expects the West to grant the Soviet Union this year. Several of the world's largest oil companies are now in the country putting together deals, and violent reaction would almost surely stall the much-needed influx of foreign currency and expertise.

The Soviet Union's future is increasingly difficult to predict. For his entire six-year tenure, Gorbachev has proved to be a master tactician, balancing between right and left, patching together compromises, and pushing the country toward ever more surprising changes. But to keep reform moving, Gorbachev now must make a clean break from the past. For many reasons, his wisest course would be to allow a high degree of regional autonomy--if he can bring himself to do it.

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