Kohl Takes Heat on Economy

WHEN German Chancellor Helmut Kohl visits east Germany after Easter, he's more likely to be the target of soft tomatoes and rotten eggs than of wild praise, as he was a year ago. The German economic experiment, the first of its kind in the world, is proving to be extremely painful for the 8 million workers east of the Elbe River.

Tens of thousands of east Germans now protest weekly against soaring unemployment. About 2.7 million people, or 34 percent of the work force, are either out of work or working reduced hours. An unemployment rate of 40 percent or even 50 percent this year is quite possible, economists warn. And east Germans continue to move westward, at a rate of 18,500 a month.

Mr. Kohl is pelted by criticism these days, but oddly, a key criticism has little to do with his economic decisions. Rather, he is accused of not having adequately prepared the east Germans for hardship and of not supporting them emotionally now.

Resentment is building on both sides of the old border, as western Germans view eastern Germans as impatient ingrates and east Germans bristle at the ``know-it-all'' attitude of the westerners. Kohl, meanwhile, has not appeared publicly in the former East Germany since his campaigning for Dec. 2 elections.

``Where the government has really failed is in communication,'' says Hans Martin K"olle, economics editor for the weekly Rheinischer Merkur, voicing a widely held opinion in Bonn. Kohl should take a tip from former President Reagan ``and make use of the television,'' he says.

The monetary union of last summer at the extraordinary artificial high rate of 1 to 1 for individuals and 2 to 1 for business is a key reason for the plummet downhill in the east German economy. Western cars were suddenly available at half the price of the sputtering, dinky east German Trabants, for instance. Meanwhile, all-important trade with Eastern Europe, especially the Soviet Union, dried up for lack of hard currency.

Bundesbank President Karl Otto Pohl said last week that the currency union resulted in ``disaster.'' But neither he, nor Kohl's political opposition, call it the wrong decision. At that time, Kohl had no choice, they admit. He was under intense political pressure to stanch the flow of East Germans moving westward.

The government's general policy is to rely on free-market forces to rebuild eastern Germany. The last few months have shown, however, that the private sector is not kicking in fast enough to significantly slow the rate at which the economy is deteriorating, although Kohl still says the standard of living in both halves of the country will be comparable in three to five years.

In February, Bonn tried to sweep away hurdles to investment and help bridge the time gap between economic collapse and significant investment by introducing a program called ``Upswing East.''

``It's a big step forward,'' says Peter Blume, spokesman for the Association of German Industry and Chambers of Commerce, a leading business organization. He believes the program has solved a key problem - property ownership rights - by giving investors clear priority in cases of disputed ownership. He also says that because of the program, ``there are now enough tax incentives and subsidies'' for investors, amounting to a reimbursement of 49 percent of investment costs.

Upswing East also earmarked 12 billion marks ($7 billion) for eastern Germany, on top of the 80 billion marks provision in this year's budget, 35 billion marks from the German unity fund, and an expected 70 billion marks over the next two years from the private sector. The European Community, meanwhile will be assisting the region with 1.8 billion marks this year. The grand total for this year is roughly 163 billion marks ($95 billion).

There is enough money available, all sides agree. ``The government has been generous with financing,'' says Wolfgang Ullmann, a Bundestag (parliament) representative from the east German industrial state of Saxony. ``But now no one knows what to do with the money. We can't even draw up our own budgets.''

Herein lies a major obstacle to economic growth that Upswing East does not adequately tackle, say its critics: There are simply not enough lawyers and administrators in eastern Germany who know the new rules. It does little good to give investors priority in cases of disputed property if there are not enough legal experts to trace the property through deed books.

Monthly bonuses for government employees who move to eastern Germany have been increased to 2,500 marks ($1,460) a month. Workers have been promised promotions when they return. But poor housing, foul air, and substandard schools keep experienced administrators away.

``People are applying to go, but they're not the qualified ones,'' says Wolfgang Roth, economics expert for the opposition Social Democrats in the Bundestag. The government should make a tour of duty in eastern Germany obligatory, he says.

The Upswing East program is inadequate in other ways, say critics. It does not clearly remove the risk to new investors of having to pay for cleaning up soil contaminated by former east German manufacturers. And the Treuhandanstalt, the government body charged with privatizing east German industry, has been given the added job of trying to rehabilitate some of the concerns to stem job losses.

``The Treuhand's only job should be sell, sell, sell,'' says K"olle. It should not get bogged down in reorganizing and streamlining concerns.

The decision to steer the Treuhand in this direction obviously came from the rapid increase in unemployment, which is turning out to be socially unacceptable in the east. Kolle says that the pressure from demonstrators could cause Kohl to stray from his free-market principles and follow a make-job philosophy that will ``only prolong the agony'' of developing a free market.

Bonn is, in fact, already moving in this direction with DM 7 billion earmarked for job creation programs, especially relating to infrastructure.