MEETING IN MOSCOW : Ukraine Performs an Economic and Political About-Face : Eastern Europe: Fledgling market economy begins to pay off in former Soviet republic. Clinton visits today.

The hottest restaurant here these days is a retro-chic diner that sports “Miami Vice” pink walls, halogen lighting and oversized Marilyn Monroe portraits with the idol’s lips outlined in fuchsia neon. The waitresses wear pastel suspenders and the itsy-bitsy black spandex skirts that seem to define the female dress code in every go-go economy of the former East Bloc.

“It looks just like the West,” said a young American admiring the posh crowd at the hard-currency-only Studio eatery. “Except the skirts are shorter.”

After four painful years as the economic basket case of the former Soviet Union, Ukraine is now galloping toward a market economy.

By agreeing to surrender its 1,800 nuclear weapons, this struggling nation of 52 million has become the political darling of the United States and Europe, which increasingly see a friendly Ukraine as an important strategic hedge against the possibility of a belligerent Russia.

“Let’s face it,” a Western diplomat said. “Ukraine has become more important in the U.S. calculus because relations with Russia are deteriorating.”

When President Clinton arrives in Kiev today, he will see the first symbol of Ukraine’s remarkable about-face: a gleaming airport that has just undergone a $15-million renovation, funded by the European Bank for Reconstruction and Development.

This is a particularly symbolic project, because during Clinton’s ill-fated visit to Ukraine in January, 1994, the President kept his Ukrainian counterpart--the leader of a nation the size of France--waiting outside on the freezing tarmac at Borispol Airport for 12 embarrassing minutes before emerging from Air Force One.

Clinton spent the rest of the two-hour stopover inside the dark, drafty, grimy terminal promising more U.S. aid.

Shortly after that visit, a CIA report warned that Ukraine was so politically divided as to be in danger of disintegration.

But since then, Ukraine has elected a new Parliament and a new president, Leonid D. Kuchma, whose popularity is rising despite his country’s hard times.

The nation has approved the Nuclear Non-Proliferation Treaty--a move that Washington desperately wanted. It also has begun dismantling the powerful nuclear arsenal that it inherited from the Soviet Union.

While the fruits of reform have been slow to reach the people, Ukraine has succeeded in hammering inflation down from 72% a month in November to 5.8% at the beginning of May--bettering Russia’s rate of 8.5%. And it has stabilized its currency.

It has freed energy prices, liberalized trade, started paying off its huge energy debts to Russia, begun privatizing more than 8,000 factories and agreed in principle to shut the accident-prone Chernobyl nuclear power plant by the year 2000.

In short, Ukraine has become a model political and economic citizen in the eyes of the West.

Kiev has been rewarded with about $3 billion in loans and aid.

Ukraine’s sharp swerve to capitalism is vehemently opposed by the Communists and Socialists who hold a quarter of the seats in Parliament.

“This is a reform plan designed by the International Monetary Fund, which has ruined every country it has set foot in,” Socialist Party lawmaker Natalia M. Vitrenko complained.

The inequalities of wealth that have sparked nostalgia for Communist egalitarianism in other Eastern European countries and in Russia are beginning to surface in Kiev.

In the past year, dozens of Western-style shops have sprouted along the historic capital’s tree-lined boulevards. A man at the wheel of a Mercedes-Benz was overheard recently advising another driver to “turn right at the Sony store.”

A free market has created instant fortunes, and brand-name-conscious shoppers are snapping up everything from Reebok shoes to Cartier watches.

But a 70-year-old woman wearing a World War II veteran button in the lapel of a fraying overcoat recently hobbled with her cane into a dilapidated state-owned food store only to find she could not afford to buy tea at $1.20 a package.

“I can’t buy meat,” she said. “I don’t want to live.”

When asked her name, she shouted: “Why should I give my name so I can be ashamed in front of the world?”

Despite the widespread hardship, Ukraine’s version of shock therapy has not generated widespread social unrest--perhaps because most of its impoverished citizens do not have much further to fall.

Economists once expected fertile, industry-rich Ukraine to become one of the financial superstars of the former Soviet Union. Instead, economic mismanagement, stagnation and political bickering have reduced the average salary here to about $30 a month. Some pensioners survive on $3 a week.

The average life expectancy has dropped by two years, and production plummeted by nearly one-third in 1994 alone.

“Completely bad economic policies for three years have already devastated the population; there is not much left to destroy,” said Swedish economist Anders Aslund, a Kuchma government adviser.

Despite popular support for his reforms, the president is hardly out of the woods.

It is unclear whether the conservative Parliament will approve his acting prime minister, former KGB boss Yevhen Marchuk, who gives the government authoritarian heft, or Kuchma’s “dream team” of young, pro-market economic reformers.

The president is also seeking legislation expanding his powers, which are limited by the Soviet-era constitution. If Parliament balks, Kuchma will probably call a referendum this spring on adopting a new constitution that gives the president more clout--but the country’s economic plight makes that a high-stakes gamble, said lawmaker Serhiy Teriokhin, a Kuchma ally from Parliament’s Reform faction.

In the longer term, even optimists see many of Ukraine’s problems as intractable.

Like most of the former Soviet Union, Ukraine remains saddled with a vast and corrupt bureaucracy that threatens to throttle a free economy and deter Western investment.

“When they see a golden goose, their first instinct is to reach for an ax,” the Western diplomat said.

The country depends on imports, mostly gas from Russia and Turkmenistan, to fuel a vast eastern Rust Belt of energy-guzzling industries that are up to five times less efficient than most others in Eastern Europe. But even if Ukraine gets the huge infusion of capital necessary to modernize its dinosaur factories and churn out competitive products, it is uncertain whether protected European markets will be open to its exports.

The energy crisis is so severe that half of the lights in Kiev’s subway system have been switched off. Last week, Kuchma instituted a Draconian natural-gas-rationing system for rural areas aimed at saving costly gas supplies this summer in order to prevent people from freezing next winter.

Such measures, as well as a new policy that forces citizens to begin paying a growing share of their long-subsidized rents and utility bills, are sure to be unpopular. Yet Kuchma apparently feels he has no alternative but to slash government spending, however painfully, to keep Ukraine from bankruptcy, collapse and domination by Russia.

Despite Kuchma’s campaign promises to seek closer ties with Russia, Ukraine’s relations with its biggest creditor and most vital trading partner are testy.

Officially, the areas of friction are how to divide the jointly owned Black Sea Fleet and how to govern the Russian majority population living in the Ukrainian autonomous republic of Crimea.

But Ukrainians say the real stumbling block is psychological: Russia has yet to come to terms with the idea of Ukraine as an independent nation, much less accept the loss of the pretty, strategic Crimea.

As the summit neared, Kiev hinted that it might like the United States to mediate the Black Sea Fleet conflict. Moscow said nyet.

In other signs of tension, Kiev expelled a Russian national for alleged spying. And a delegation of Russian lawmakers, feeling snubbed over not being invited to Kiev for the 50th anniversary of the end of World War II, announced that it would attend ceremonies in Crimea instead.

Yet Kiev’s relationship with Washington is growing ever cozier, and the Clinton-Kuchma summit is likely to be a love fest.

“At a time of extraordinarily amicable relations, there is remarkable agreement on every issue,” a senior U.S. State Department official told reporters in a preview of the happy rhetoric expected during the next two days.

However, since Ukraine has already received a major commitment of U.S. aid, more U.S. largess is unlikely.

Clinton may promise to seek a small increase in funding for a U.S. program to help Ukraine dismantle its nuclear weapons. And a credit line from the U.S. Export Import Bank that was frozen after Ukraine defaulted on payments will probably be reinstated, sources said.

In general, however, the United States now sees its role as prodding Europe and Japan to pony up more aid for Ukraine.

For Kiev, what matters more than money is the symbolism of Clinton’s visit.

After the presidential flyby last year, Ukrainian officials had been especially insistent that Clinton come for a proper state dinner and spend the night. That has caused some discomfort among Clinton’s security detail, which has hinted that Ukraine, four years after independence, still does not have accommodations safe enough for a visiting U.S. President.

Diplomacy triumphed over security, however, and Clinton is now scheduled for a two-hour meeting with Kuchma, followed by a banquet and concert at the Mariinsky Palace and an overnight stay at a government guest house.

On Friday, Clinton is to receive an honorary doctorate at T.G. Shevchenko State University and lay a wreath at the Babi Yar monument to the victims of fascism.

Clinton will then head back to the Mariinsky Palace for what is expected to be an upbeat departure ceremony that will give the President a warm glow to take home to Washington--no matter what the final verdict on his visit to Moscow.