If They'll Work Together, Baltics Can Go It Alone

'THE economy of the Soviet Union can be compared to an enormous factory, with the regions and republics as different shops within that factory. Such an economy can function only in coordinated rhythms. It is not suited, unfortunately, to independent, autonomous actions." These words from historian Yuri Afanasyev rang in my ears as I joined a Swedish-led international working team studying the economic prospects of the Baltic republics. Why, just days following the January shootings in Vilnius and Riga, did Soviet authorities allow us free access to Baltic politicians, economists, factory directors, and workers? Did the Soviets expect Western economists to conclude that 50 years of resource dependence on the Soviet economy had rendered these republics incapable of surviving on their own?

If so, they were disappointed. Future Baltic states can sustain balanced trade while narrowing the gap in living standards with Western Europe. This reflects the Baltic peoples' Western orientation, favorable geographic location, and advanced skills.

This optimistic conclusion presupposes realistic policy: fiscal and monetary restraint and sufficient microeconomic flexibility to ensure efficient international trade. In addition, Baltic governments must move away from central planning, in order to stimulate incentives to conserve resources, promote structural change, and innovate.

While long-run prospects are reasonably bright, the transition process - even without Soviet military intervention or economic sabotage - will be onerous. The deterioration in Baltic terms of trade reflects their heavy dependence on Soviet fuel and metal imports; prices may escalate dramatically while supplies are sharply curtailed.

Short-run Baltic prospects depend critically on three factors: possible Western aid, Baltic-Soviet negotiations, and growing horizontal links among Soviet republics. As evidenced in Eastern Europe, successfully dismantling central planning and substituting market-type institutions is inconceivable without a net capital inflow. The Baltic states will require official Western credit and technical assistance along with private investment.

Meanwhile, a tug-of-war continues between the Union and Baltic governments. Moscow and the Baltics clash on ownership rights over so-called Union enterprises. All three Baltic governments are refusing Moscow's requests for specific payments to the All-Union budget, with Lithuania rejecting any payment whatsoever. A "banking war" rages between central and Baltic financial authorities, and Baltic attempts to introduce their own currencies defy Moscow's plea for a unified monetary policy. The agreement bet w

een Gorbachev and nine Soviet republics threatens a denial of "most favored nation" treatment to republics declining to sign the Union Treaty.

A counterweight to the uneven struggle between Moscow and the Baltics is burgeoning cooperation among Soviet republics. Invited to address representatives from 12 Soviet republics in Tallin, Estonia, I was impressed with the priority given to concluding interrepublic cooperation agreements, bypassing central directives.

Such agreements represent an immediate response to the Soviet supply crisis. They also suggest how republics can strengthen their bargaining power with the center. But numerous uncertainties arise. For example, assigning state orders to Baltic enterprises to fulfill intergovernmental barter-type agreements could discourage enterprise autonomy, the lifeblood of a market economy.

Another question mark is the snail's pace at which intra-Baltic cooperation has been implemented. Little has been accomplished in promoting a free trade area. Despite the solid economic arguments for a coordinated monetary policy, or a common Baltic currency, such suggestions are political non-starters.

Although separated by distinct cultures, the Baltic republics' common goals should encourage greater coordination. It is puzzling why wage and price increases have not been better dovetailed. One could imagine more reliance on joint negotiating positions concerning the sharing of Soviet assets and liabilities, budgetary obligations, and Soviet troop ceilings.

The obstacles facing the Baltics as they strive toward independence and build a market economy are daunting indeed. If given the chance, can the Baltic republics survive as independent states? Absolutely. But the path to independence and a market system will be rocky. They can best succeed through flexible and bold policymaking, greater cooperation, and Western assistance. The Baltic republics' biggest challenge lies in negotiating terms for exiting the Soviet Union. According to all economic logic, the i

r huge Eastern neighbor should remain their dominant trading partner. But this presupposes independence and control over key economic instruments. Will Moscow ultimately give in?