Economy Is at Heart of Ukraine Vote : Election: The choice at the polls seems to be either independence at the risk of financial ruin, or a move toward Russianization. Returns are expected today.

Volodymyr Volkov counts his wife’s monthly wage in bags of mushrooms. “She earns three of these,” he said, pointing to the two-pound bags of creamy white champignons he was selling Sunday at Kiev’s Bessarabian Market.

Volkov’s wife, a government office worker, isn’t the only one who couldn’t afford them. “If you’re living on your salary, don’t bother,” he told a matron who groused at the price of a bag, equal to about $4.

Still, it took just 10 minutes for Volkov to sell four bags of mushrooms. “I earn a good living doing this,” said the economist-turned-food peddler from Fastov, a town about 40 miles southwest of here.

As Ukrainians voted for a president Sunday, they also scrambled to make a living in the ruins of economic collapse. Activity at outdoor markets, where many salaried Ukrainians moonlight as unlicensed merchants, was as brisk as it was at the polls.

The bustle of Ukraine’s informal economy is one reason why this former Soviet republic has peaceful politics and President Leonid Kravchuk is still in the race. Opinion polls showed the runoff between Kravchuk and former Prime Minister Leonid Kuchma too close to call.

On paper, slow-reforming Ukraine is the basket case of Europe. Consumer output, as measured by official statistics, is down 40% over the past year. National income has dropped by 36%, construction by 40% and exports by 30% since mid-1993.

“If a market economy had those kinds of statistics, people would be revolting,” said Ian Brzezinski, a U.S. political analyst who advises the Ukrainian Parliament.

But after 2 1/2 years of independence, Ukraine still doesn’t have a free market; instead of a revolt, Ukrainians are choosing between their current leader, who engineered the break with Moscow, and a challenger who advocates closer ties with wealthier Russia to jump-start the economy. Early returns were not expected until today.

The election has polarized Ukraine between the independence-minded western provinces, which heavily backed Kravchuk in first-round voting two weeks ago, and the Russianized east, which favored Kuchma. Kravchuk, who had trailed in most pre-election polls, won 38% of the overall vote to Kuchma’s 32% in a field of seven.

Many political analysts viewed Kravchuk’s first-round lead as a measure of how many Ukrainians are willing to suffer materially for the sake of statehood. But it was also a sign that Ukrainians may not be doing as badly as first believed.

Volkov, the mushroom peddler, summed up the view of many voters willing to settle for four more years under a president who spouts the rhetoric of economic reform but maintains an ideology of cautious inaction.

“I voted for Kravchuk,” he said. “He won’t take us forward, and he won’t take us backward, and most of all, he won’t interfere with my life.”

During the campaign, Kuchma tried to capitalize on the comparisons many Ukrainians make with their relatives in Russia, where the average wage is at least four times higher than the average here.

Alla Tovstoles’ family hasn’t had fresh meat since Easter, even though she spends her husband’s $35 monthly paycheck almost entirely on food.

But statistics ignore the signs of wealth everywhere. Mercedes-Benzes and BMWs jam city streets from Lvov to Donetsk. Teen-agers pay for taxi rides with dollars. Mini-mansions costing $250,000 each are sprouting up in the suburbs. College professors earning tiny salaries watch World Cup soccer matches on new Sony televisions in their living rooms.

Tovstoles has earned $300 since spring breeding Persian cats to supplement her husband’s paycheck.

“If I sell a kitten, the children will get new clothes,” she said, waiting in a Kiev park for anyone willing to pay $100 for the tawny ball of fur sleeping in her lap.

Official statisticians focus only on the formal economy, in which producers and merchants apply for permits and pay taxes, and where 90% of everything is formally owned by the state. Until recently, it was also state-controlled.

Not anymore. According to World Bank economist Daniel Kaufmann, the more the government has tried to command the economy with Soviet-style diktats , the more it has squeezed state factory and farm managers until they wriggle free of its grasp.

Today the burgeoning informal economy is believed to make up about half of all wages, 40% of housing construction, 20% of food and 75% of the retail clothing trade--all beyond the reach of statisticians and tax collectors.

“What is most startling about Ukraine’s underground economy is how fast it has grown in contrast with the dwindling official economy,” Kaufmann said.

On a grand scale, where state enterprises export “shadow production” and stash millions of dollars in earnings in offshore banks, people use the word mafia to describe the underground economy and its entrepreneurs. On a small scale--where Tovstoles sells kittens next to women in babushkas hawking parsnips, and none of them reports income--it’s called survival, and it is the cushion keeping Ukraine’s economy afloat.

Shadow profits have their price. Traders pay bribes for permits instead of applying for them. They pay protection money to racketeers instead of taxes, breeding corruption, criminality and government budget deficits. There are costs for the economy as a whole when assets, labor and brainpower drain into short-term, quick-buck schemes instead of investment.

“No economy can thrive in the underground for very long,” said Kaufmann, who believes the growing imbalance will eventually force either man elected Sunday to free the formal economy from the state’s remaining tethers.