Ukraine Reaches Accord With IMF to Start Market Reforms : Europe: New president signals readiness for economic overhaul in exchange for financial backing from West.

The new Ukrainian government reached a preliminary accord Friday with the International Monetary Fund to launch market reforms in one of the weakest and most Communist economies of the former Soviet Union.

The handshake agreement was the first clear sign that President Leonid Kuchma, who took office two months ago, is ready to move ahead with a promised economic overhaul in return for financial backing from the West.

Lawrence de Milner, the IMF representative in Kiev, announced the agreement after meetings between an IMF official, Peter Hole, and Ukrainian Economics Minister Roman Shpek. If approved by Ukraine’s Cabinet and the IMF’s board, De Milner said, the deal could be signed and an initial credit of $350 million released as early as next month.

In return for the loan, which will bolster its central bank reserves, Ukraine pledged to tighten fiscal and credit policy, balance the budget, liberalize prices and exchange rates and ease trade restrictions.

Perhaps because the deal is controversial within the government, details were not spelled out, and no Ukrainian official appeared with De Milner to brief reporters.

The IMF program is certain to be unpopular among lawmakers in the Communist-dominated Parliament, among rust-belt industrial directors spoiled by easy government credits and among a semi-criminal elite that is profiting handsomely from Ukraine’s economic troubles.

But Kuchma, the former director of the Soviet Union’s largest missile factory, has indicated that he will bypass Parliament if it balks.

He told the Interfax news agency this week that his economic stabilization program, to be announced Oct. 4 and expected to conform to the IMF deal, is not subject to lawmakers’ approval.

Ukraine’s Soviet-vintage prime minister, Vitaly Masol, may also resist the IMF deal. Masol was appointed by Leonid Kravchuk, Kuchma’s predecessor, to win Communist support in an unsuccessful reelection bid. But Kuchma has been packing the Cabinet with his own appointees, and some politicians believe that Masol’s days are numbered.

Ukraine, with 52 million people, was an industrial powerhouse and the breadbasket of the Soviet Union. It quickly became a basket case after declaring independence three years ago and losing its cheap sources of energy from Moscow.

Its economic troubles have deepened in the last six months while the executive and legislative branches focused on their own elections. Masol announced last week that the government was bankrupt and unable to pay its foreign debts, mostly to Russia and Turkmenistan for energy.

In a report this week, the International Labor Organization said that Ukraine has “the highest level of hidden unemployment in Eastern and Central Europe, the lowest minimum wage, possibly the greatest degree of poverty and the most alarming growth of open unemployment.”

Inflation, which had been reined in from 80% a month last fall to less than 2% in August, is roaring again after Parliament approved a round of agricultural credits.

The measures prescribed by the IMF are expected to cause an additional burst of inflation as price controls come off. But De Milner said the program also includes measures to protect the poorest from high prices and unemployment.