Ukraine’s Dream of Prosperity Fades to Poverty : Economy: Farmland and factories promised riches for the ex-Soviet republic. But reforms stalled and ‘catastrophe’ threatens.

The rest of their economy is collapsing, but the good news for Ukrainians this summer was that the notoriously wasteful state collective farm system yielded enough grain, just barely, to keep the nation’s 52 million people fed through the winter.

Then came the shock. State-controlled prices for bread, a stable and affordable icon of the old Communist order, rose eightfold with a single decree, while meat and milk prices tripled.

A loaf of rye here still costs less than an American dime. Yet for most Ukrainians, who stand stoically in long bakery lines, that’s half a day’s wage, thanks to the steepest inflation anywhere in the former Soviet Union.

Sapped by a corrupt, free-spending government and jolted by the soaring cost of imported Russian fuel, the second-largest nation in Europe is facing what Prime Minister Leonid Kuchma calls “the brink of economic catastrophe.”

With that warning, Kuchma announced Sept. 9, for the third time since May, that he is resigning. It is a symptom of Ukraine’s paralysis that Parliament has yet to accept his decision or give him the special powers he has demanded to deal with an emergency.

Ukrainians today suffer all the ills of a command economy in shambles but enjoy few of the opportunities of the free market that is supposed to replace it. Prices have entered the dizzy realm of hyper-inflation, rising 50% or more a month, while output is shrinking at a rate that will exceed last year’s drop of 16%.

The karbovanets, Ukraine’s currency, more than doubled in circulation this summer to fuel the harvesters, to keep money-losing factories open, to end a miners strike and to enrich crooked officials. Its value has plunged from 6,000 for $1 in mid-August to 13,000 for $1 today.

This slide into poverty is stunning and frustrating for a well-educated people blessed with rich farmland, valuable ports and a solid industrial base--all pluses that seemed to promise more prosperity to their republic than enjoyed by any of the 14 others created by the collapse of the Soviet Union in 1991.

Once part of a comfortable professional elite, Yuliana Oryshchenko, 53, and her husband, engineers at a state oil-drilling company, now earn together the monthly equivalent of $9.54. They spend it all, she says, along with her mother’s pension and son’s earnings as a security guard, on food, rent and bus fare for a family of five.

“People are disillusioned. They’ve lost their hope,” said Oryshchenko, gauging the subdued mood of an Independence Day crowd in Lvov last month. “This is a day we all struggled for, but the only people who live better now are those who steal from the state.”

Mindful of Ukraine’s subjugation by Moscow for all but a few of the past 350 years, the new leaders have worked harder to protect the republic’s national security and cultural heritage than its living standards, which depended in part on the forced union with Russia.

President Leonid Kravchuk today commands an army of nearly 500,000 former Soviet soldiers. To the dismay of the West, Parliament is hedging on his pledge to disarm 176 Soviet-built nuclear missiles and pressing for security guarantees against Russia, which has territorial claims on Ukraine’s Crimean Peninsula.

The Ukrainian language, shunned by the urban elite under Soviet rule in favor of Russian, is making a comeback and is now dominant in schools, universities and public offices. The works of Ukrainian writers and filmmakers banned under Soviet rule are enjoying overdue popularity.

“Two years ago, if you went out on Kreshchatik (the main street of Kiev, the capital) and asked young people something in Ukrainian, they would have answered you in Russian. If you do that today, they will answer in Ukrainian, or at least they will try,” said Valentyna Pavlenko, who runs lectures for teachers called “Famous People in Ukrainian History.”

But for all their success at nation-building, Ukraine’s leaders have been slow coming to grips with the high cost of independence.

“Our whole economic system (under Soviet rule) was based on low energy prices, 3% of the world level, which concealed our technical backwardness,” Yuri Kostenko, Ukraine’s minister of environment, said in an interview. “When we declared our sovereignty and drew our borders, this was not taken into account.”

With little fuel of its own, Ukraine today pays about 80% of world prices for Russian oil and gas, and those are to rise to world levels Jan. 1. Ukraine has fallen $2.5 billion behind on payments, prompting Moscow to reduce its pipeline deliveries recently.

A sober reckoning came Sept. 3 when Kravchuk agreed to sell Ukraine’s share of the Soviet Union’s prized Black Sea Fleet, an important badge of its sovereignty, to Russia in exchange for debt relief--and to keep the fuel flowing.

“We had to act on the basis of realism,” the president insisted, in the face of nationalist outrage. “Suppose we had slammed the door and left. The gas would have been turned off and there would have been nothing left.”

Ukraine’s weakness has undermined a fledgling sense of national identity among its people, 90% of whom voted for independence two years ago.

In interviews last month in three cities--Kiev, Lvov and Donetsk--Ukrainians expressed sharply divergent opinions on whether independence was a good idea after all.

It is an issue that Kravchuk faces this week when he joins the leaders of Russia and eight other former Soviet republics to discuss a restoration of strong economic union, an idea he has shunned in the past but is now gaining favor in his government.

Ukrainians divide in their views along regional lines. Many in the Russified eastern city of Donetsk, where heavy industry was crippled by the loss of Russian markets after 1991, favor a restored economic union. More nationalist-minded people in Lvov, near the western border with Poland, demand that all Moscow ties be cut.

“It’s impossible to achieve the kind of independence that western Ukraine wants,” said Yuri A. Bolderev, an electrician and union boss who led a 12-day miners strike in Donetsk last June. “Our whole economy is geared to Russia.”

Donetsk, perhaps the greenest industrial city in Europe, hardly observed last month’s Independence Day. Bigger crowds turned out two days earlier for Miners Day, honoring the workers whose strike had become a symbol of anti-nationalist sentiment.

Amid the Independence Day celebrations in Lvov, a visiting Russian academic got up at a seminar on Ukrainian studies and insisted that the two countries are “Siamese twins, the same organism”--a view that would have been applauded in Donetsk. In Lvov, he was jeered.

Nearly all those interviewed voiced a common complaint: Ukraine’s failure to take even the halting steps toward market reform that are under way in President Boris N. Yeltsin’s Russia, which from here looks like a beacon of progress.

While Russia has sold a third of its state enterprises and created a dynamic private sector, 96% of Ukraine’s economy remains state-owned. The republic has failed to attract major foreign investment or loans, except for $27 million from the World Bank to help the treasury fix its system of collecting statistics.

“To be frank, our leaders have done nothing,” complained Viktoria Mokrinskaya, a 57-year-old Kiev engineer.

Ukraine these days is a relatively tolerant place encompassing scores of minorities. It has avoided the post-Soviet violence tearing at such lands as Tajikistan and Georgia.

Fearful that the slightest turmoil could threaten independence, Ukraine’s leaders chose to pour inflationary subsidies into mines, factories and collective farms rather than leave them at the mercy of market forces.

The coal strike, which shut down 228 mines last June, was the most serious unrest so far. The government ended the walkout with wage increases equal to half its anticipated 1993 tax revenues and agreed to a referendum this month on confidence in Kravchuk and the Parliament.

Now Parliament is balking at the referendum, and opposition parties are calling for new strikes to force early elections.

Kravchuk, a Communist Party ideologist and latter-day nationalist who led Ukraine’s independence drive, is still relatively popular. But the government and the Parliament, dominated by old apparatchiks, are widely seen as corrupt.

Kravchuk, in an interview, blamed Ukraine’s crisis on the Cabinet headed by Kuchma, who once ran a Soviet missile factory.

“They work like a fire brigade,” the president complained. “If something is bad today, they try to fix it. But they don’t have a plan for structural reform of the economy.”

Because Parliament resists privatization, he said, the government has little choice but to keep subsidizing such vital producers as the collective farmers, inefficient as they are.

“If there had been no (government) help for this harvest, there would have been no grain and Ukraine would not have had bread,” he said. “There would have been no inflation--and there would have been no bread.”