Ukraine Beset by Economic Woes

KIEV -- Tanya Solorub has not been paid in two months, but she still spends seven hours a day at a knitting machine in a sweltering corner of the Vereteno textile factory.


"They keep promising to pay us, and we keep working," the 27-year-old said without lifting her head from a half-finished navy blue jumper. "I don't know what else to do."


All of Ukraine is in the same boat. A third of the country's large factories have shut down. Most of the rest are months behind in paying their employees. Production crashed in January, down 33 percent from a year earlier. Inflation hit 9,000 percent in 1993. Neighboring countries are threatening to cut off fuel because of debts.


And nobody seems to know what to do.


On Thursday, Ukrainian President Leonid Kravchuk begins a visit to Washington in which he is expected to ask President Bill Clinton for emergency help.


Kravchuk has one big bargaining chip: the 1,800 nuclear warheads that Ukraine inherited when the Soviet Union broke up.


In January, he signed a pact with Clinton and Russian President Boris Yeltsin to eliminate those weapons. Since then, however, Kravchuk has pulled out of Ukraine's June presidential election, saying he could not defend the country's collapsing economy before the voters. His withdrawal means he may not have enough time or clout to push the disarmament pact through a reluctant parliament.


Although Kravchuk probably will not phrase it so bluntly, the message to Washington is clear: The U.S. must come up with big bucks if it wants Kravchuk to get back in the race and Ukraine to go non-nuclear.


Kiev sources say the Ukrainian government is hoping for an immediate, $300 million "bridge loan," followed by $700 million from the IMF.


The problem, according to IMF advisers and Ukrainian economists, is that Ukraine has no idea where this financial bridge would lead.


"Today, after two years of independence, we still do not have a clear plan for economic reform. We needed one a long time ago," said Vitaly Melnichuk, chairman of the parliament committee on privatization of state enterprises.


Economic collapse is a major reason why two ethnically Russian regions, Crimea and eastern Ukraine, have growing popular movements for independence or re-attachment to Russia.


The roots of Ukraine's economic woes are monstrously energy-hungry factories and an extremely slow pace of free-market reforms. Russia, Kazakhstan and the Baltic states have moved faster to free prices, sell state property and make their currencies convertible.


With 53 million people, Ukraine was the second most populous Soviet republic. It called itself the nation's breadbasket and believed it was getting a raw deal under Moscow's central planning. Ukrainians were convinced they gave more to other republics than they got in return.


Since independence, however, Ukraine has had a negative trade balance with the former Soviet Union. When Russia and Turkmenistan began charging world prices for oil and natural gas, it was an enormous shock.


The first step in adapting would be to make Ukraine's industry subject to market forces. Instead, the government has bowed to a powerful lobby of factory directors who continue to receive heavy subsidies, rely on state loans and avoid private ownership. Only 12 percent of the country's 6,850 large- and medium-sized industrial enterprises have gone private. Sixty-five percent are state-run, and 23 percent are owned by the state but leased to workers and management.


Kravchuk, a former Communist Party leader turned Ukrainian nationalist, has largely surrendered economic policymaking to the powerful parliament speaker, Ivan Plyushch, and Prime Minister Yefim Zvyagilsky. They are allied with industry and support heavy government spending, paid for by printing more money.