Arms makers feel chill wind of peace: The former Warsaw Pact is battling to turn swords into ploughshares, writes Tony Barber, East Europe Editor

LAST October, about 4,000 Bulgarian arms-industry workers marched through central Sofia. Their banners were emblazoned with one word: 'Markets]'

Earlier this month, Czech police seized 2,500 Kalashnikov assault rifles from the premises of two businessmen.

The weapons, destined for export, had belonged to a paramilitary unit disbanded after the fall of Communism.

The incidents underline two problems facing arms industries in former Warsaw Pact states. One is a slump in production and exports, with an attendant rise in unemployment, company debt and social hardship.

The other is an attempt by 'businessmen', who often turn out to be defence personnel or former security policemen, to salvage the situation by increasing illegal sales of weapons.

Across Eastern Europe, people employed at the huge weapons factories that flourished under Communism face a bleak future. The end of the East-West confrontation, the dissolution of the Warsaw Pact and the contraction of world arms export markets mean that many plants are closing down or cutting back their operations. In Poland, Slovakia, Bulgaria, Ukraine and above all in Russia, hundreds of thousands of workers face the sack.

The crisis has already had political consequences. The fall last autumn of Bulgaria's first non-Communist government since the 1940s was provoked partly by the turmoil in the defence industry. The break-up of Czechoslovakia last year was related to Slovakia's resentment that Prague-based officials seemed intent on limiting Slovak arms exports.

Towns such as Mielec and Radom in Poland or Targovishte in Bulgaria have survived for years by making and selling weapons. US arms control officials estimate that from 1985 to 1991 Poland was the world's seventh-biggest arms exporter; but in the past four years Polish arms output has dropped by 70 per cent.

In the once 'secret' cities of the Soviet Union, which fell under the defence industry's jurisdiction, more than 80 per cent of the workforce earned their income by making weapons. In such areas, the 'peace dividend' beloved of Western politicians sounds like a bad joke; to cut military spending there is not to release funds for social expenditure but to induce social collapse.

The West's answer is that the region's military industries should adopt 'conversion programmes' designed to help them switch over to making civilian products. But some Eastern European officials detect a certain hypocrisy in the West's effort to restrict their production and exports of weapons. After all, they point out, Western defence companies seem as aggressive as ever in seeking out markets. To take just one example, the United States put heavy pressure on Czechoslovakia in 1991 not to sell 500 tanks to Egypt, but soon afterwards sold the Egyptians exactly the same number of US-made tanks.

For a country such as Slovakia or Bulgaria, burdened with inflation, unemployment and lack of foreign investment, the temptation is strong to continue exporting weapons.

Governments are trying not to upset the West by selling arms to hostile or undemocratic Third World countries, but arms exports still earn valuable hard currency and keep people in jobs. In Bulgaria, where arms companies employ about 140,000 people and another 300,000 are indirectly involved in military production, that is an important consideration. Indeed, some Russians and Eastern Europeans argue that arms exports provide essential funds for financing conversion.

Anatoly Sobchak, the Mayor of St Petersburg, a major arms-producing area, complained last November that Russia's proposed conversion programme was 'barbarous' and playing into the hands of US and German arms exporters. He estimated that Russia could earn dollars 20bn ( pounds 13.8bn) a year in arms sales, a sum that would greatly ease its foreign debt and budget deficit problems.

The Foreign Minister, Andrei Kozyrev, has publicly urged the West 'to make room for Russia' in international arms markets by letting it sell weapons to the Gulf states, other Asian countries and even the West itself.

According to Mikhail Malei, President Boris Yeltsin's adviser on conversion, dollars 14bn was the most that the Soviet Union earned from arms sales in a single year, and it received only dollars 4bn-dollars 5bn of that in hard cash. Exports have plunged in the last two years and may have been as low as dollars 1.55bn in 1991, partly because of the disappearance of Iraq and Libya as major Russian arms markets.

The financial difficulties of many military enterprises are so acute that, according to Itar-Tass news agency, 350,000 Russian workers have lost their jobs. The precise number of defence workers in Russia is hard to calculate but one expert, Christopher Smart, believes that about one-third of the entire Soviet industrial workforce was devoted to military production.

These workers have organised themselves in trade unions and professional associations dedicated to maintaining the arms industry. There is even a Union of Nuclear Warhead Developers that includes specialists from Arzamas-16, a 'secret' city east of Moscow where the Soviet atomic bomb was conceived.

As the crisis in the arms industries of Russia and Eastern Europe gathers pace, there is every chance that such groups will become an increasingly vocal lobby.