Ukrainian Economic Plan Targets Spiraling Inflation

After 13 months of dithering, Ukraine’s government on Tuesday presented its hard-line Parliament with a make-or-break reform program to lift the country out of post-Soviet economic chaos.

Outlining his controversial plans before parliamentary critics, many of whom are already demanding an end to economic reform, Economics Minister Viktor Pynzenik said his one-year austerity plan is designed to cut the spiral of hyper-inflation and industrial decline.

The plan, aimed against factory directors who have been abusing new economic freedoms to charge exorbitant prices for the monopoly goods they produce, calls for a return to strict government control over the state-owned industries that dominate in Ukraine. Proposals included a way to fire directors who price-gouge.

Prime Minister Leonid Kuchma described the economic situation he has inherited as a “total, across-the-board crisis.”

Kuchma, who used to be director of the world’s largest rocket factory, faces an unenviable task: to turn around one of the most battered of all the economies of the former Soviet republics.

Ukraine has struggled to define itself. The country vacillated for a year and a half after the Soviet Union fell apart. Seven reform plans had already been announced in the past 12 months, each ignored and then superseded. Laws are passed by the Parliament but not enforced by the bureaucracy.

Instead of exploiting its rich farmland to be Europe’s breadbasket, the country is now one of the Continent’s basket cases. Its black markets do lively trade on the U.S. dollar and the German mark. Its own currency, the karbovanets, is sinking so fast that exchange rates against Western currencies are halved every month.

More ominously, the country has, according to Pynzenik, recently slipped past 50% inflation a month. Economists define this as the point where hyper-inflation starts and prices change nearly every day, running ahead of wages and impoverishing ever-increasing numbers of citizens.

However, instead of pushing ahead toward a free market, the stabilization program announced Tuesday revolves around reining in the power of managers of Ukraine’s biggest state enterprises.

The managers, who are well represented in Parliament, have formed an alliance with state farm directors to block reform and turn the clock back. The idea may be unrealistic, but to many in this country used to a life of order, it makes good sense.