Economic decline fuels the crisis


By Renfrey Clarke

MOSCOW — With 52 million people, highly developed industries and enormous agricultural riches, the Ukraine might seem destined to become an economic giant.

But history, not to speak of international lenders and foreign trading partners, is not proving so kind. Since gaining independence at the end of 1991, the Ukraine has suffered fiscal anarchy, heavy inflation and declining output.

Its industry depends on raw materials, components and energy from other former republics of the USSR, especially Russia. The breaking of economic links with suppliers and customers, or the insistence of suppliers on payment in hard currency, has crippled many enterprises. Russian demands for world prices for oil have helped create an acute fuel shortage.

Fear of popular unrest has forced the government to legislate wage increases and maintain basic social services. But with severe depression cutting state revenues, a huge and highly inflationary budget deficit has arisen. During 1992 consumer prices rose by more than 2000%.

Last year, output of basic consumer goods in the Ukraine fell by 10.9%, and of foodstuffs by 14.9%. Gross national product during the first quarter of 1993 was down by 10% on 1992.

Ukrainian leaders are under pressure from the IMF to introduce tough austerity policies and to push ahead with privatisation. But with the crisis in Russia before them, many high-placed Ukrainians are justly sceptical of Yeltsin-style "shock therapy".

Ukrainian authorities were slow to begin scrapping state economic controls, which is one reason the economic decline has not been far worse. But last October President Kravchuk appointed Leonid Kuchma as prime minister, with instructions to launch "reforms", including the privatisation of

state industry. Kuchma, formerly the director of a giant missile factory, had a reputation as a moderate liberal and a skilled industrial manager.

In November the parliament voted Kuchma special powers for six months to issue economic decrees. Kuchma proceeded cautiously with privatisation, however, concentrating instead on maintaining production. By May, only about 100 of 68,000 state enterprises had been sold off.

An effort was made to improve the management of state-owned industries, which the prime minister accused of irresponsibly raising prices and wages. A "war on corruption" was launched, with directors of state enterprises banned from running private businesses.

The political process proceeded without the dramatic confrontations seen in Russia. But as millions of Ukrainians slipped into acute poverty, social tensions were increasing.

In May, Kuchma's extraordinary powers were due to expire. On May 18 he asked the parliament to extend the powers for another 12 months, saying he would resign if the request were refused.

Until this point, Kravchuk had not played an active role in the "economic reform" measures. But on May 20 he shocked the legislature by demanding to be allowed to take personal control of the process.

Kravchuk proposed that he head the government himself, eliminating the post of prime minister. He called on the parliament to transfer to him the special powers Kuchma had enjoyed, also demanding control over the Central Bank and the State Property Fund, which administers privatisation.

The same day, Kuchma tendered his resignation. But on May 21 the parliament refused to accept it, also denying Kravchuk most of the extra powers he had demanded.

Kravchuk then issued a series of Yeltsin-style pronouncements making clear that he wants the constitution changed and power concentrated in the

presidency. But unlike the situation in Russia, the political stage in the Ukraine is no longer the near- exclusive preserve of recycled members of the party-state nomenklatura feuding over how to divide up power and property among themselves.

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