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Government Proposes Freezing Half of Businesses’ Accounts

November 26, 1990

MOSCOW (AP) _ The government today proposed freezing 50 percent of the bank accounts of state-owned businesses by Saturday in an effort to cut the national budget deficit, Tass reported.

The national defense budget also would drop by 10 percent and other Soviet agencies would take cuts of up to 30 percent under the 1991 national budget proposed to the legislature, the official news agency said.

Finance Minister Victor Pavlov also said the nation’s gross national product in the first nine months of 1990 dropped by 13 billion rubles, or $23.4 billion at the official rate, from the previous year, according to Tass. The government last month had said GNP for the period dropped 1.5 percent.

The report was one of the most comprehensive yet on the state of the national economy. But a flourishing black market, critical shortages of most basic consumers goods and economic rebellion by many of the 15 Soviet republics made it difficult to determine how the final budget would shape up.

Tass said the government budget was being divided for the first time into national and republic levels. It put the national government’s share of the budget at 261 billion rubles, slightly less than half the total.

The proposal on bank accounts, if approved, would be the first large sell- off of shares in state-owned businesses in Soviet history and a significant step in a massive scheme to denationalize state-owned industries.

The proposal amounts to a drastic, last-ditch effort to cut the enormous Soviet budget deficit before the end of the year. The deficit stood last year at about 120 billion rubles.

Pavlov told lawmakers that officials projected that this year’s national deficit would be 56 billion rubles, or about $100 billion, out of a budget of 508 billion rubles, $915 billion. It was not clear if the figures included the spending freeze.

The proposal would allow employees to receive the frozen funds only in the form of stock shares in their companies.

Tass said the government would freeze 50 billion to 60 billion rubles, $90 billion $108 billion, of state-owned businesses’ accounts - half of their total deposits - that the enterprises fail to use before Saturday.

But the resources may be transferred to work collectives to buy shares in the enterprises. The news agency said the moratorium would be temporary, but did not say how long it would last. It was not clear whether employees would hold the stock in their own names or as a group.

As part of the attempt to slash the budget deficit, 1991 foreign aid will be cut to one-quarter of this year’s level, Tass said. A number of Communist countries, such as Cuba, have relied heavily on Soviet subsidies and are likely to be hit hard by the cutbacks.

The defense budget is to drop to 64 billion rubles, $115 billion, next year, Tass said. That would be roughly 40 percent of the proposed national budget.

The Soviet government bureaucracy faces a 30 percent budget cut, Tass reported. No other details were offered and it was unclear which government agencies would be hit hardest.

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