Ukrainians See Prosperity, Risk In New Privatization Campaign

WHEN Irina Yasniska chose to lead her fellow employees in a bid to buy the small shop where they work, she was simply following in the family tradition.

Her parents, who had owned a family business before World War II, when western Ukraine was part of Poland, advised their daughter to delve into the precarious world of post-Soviet private enterprise and become a business owner.

So late last month Irina and her six co-workers outbid the competition and bought Sofia, their housewares shop, for 48 million karbovantsi (about $24,000) at the first sale of small enterprises in Ukraine.

Analysts are optimistic about the potential success of privatization here because of Ukraine's tradition of private enterprise and because reformist leaders in the republic's new government support the measures. And Lvov, the largest city in western Ukraine, made a logical starting point.

In contrast to Russia, where the first privatization auctions were held nearly a year ago, residents of western Ukraine still harbor memories of private ownership from its days under Polish rule between the two wars. The region was annexed by the Soviet Union after World War II and private property was nationalized.

"I'm convinced that private ownership is the only way things will get better," says Irina, despite her anxiety over testing the waters of privatization.

Ukraine, a country the size of France, was a major agricultural exporter until the 1930s, but under Soviet control agriculture was neglected in favor of industry. Government economists now hope that state-owned and new, private firms will earn hard currency by selling crops and manufactured goods to Europe.

Yet even with Ukraine's progressive reputation, the road to the auction block for Lvov authorities and their advisers from the International Finance Corporation (IFC), a World Bank affiliate, has been long and arduous.

ALTHOUGH the reformist forces in the Lvov City Council faced little of the strong popular opposition to privatization that their counterparts in Russia have encountered, they had to struggle with resistance from the former central government in Kiev, Ukraine's capital.

Until it was replaced in October 1992, the republic's government had been composed of old guard communists who urged slower reforms, saying the population was not ready.

"There is no doubt that regarding economic reforms, Ukraine is clearly [still] behind Russia, mostly because there was no commitment to reforms until now," says Roberta Feldman, the IFC's project manager for small-scale privatization in Ukraine. "We came to Lvov last summer just before the only reformer in the government was fired, and his replacements were not only uninterested in privatization, but quite frankly wanted us to fail."

The Lvov City Council became the first to adopt a privatization program for 1992 in September. "But they still did not have the self-confidence that, say, the radical local authorities had in Nizhny Novgorod," where Russia's pilot small privatization project began in April 1992, Ms. Feldman says.

In its economic reform plan for 1993, Premier Leonid Kuchma's reformist Cabinet has made a priority of privatizing nearly all small businesses involved in trade, food, and consumer goods, sales, and services. The privatization of large enterprises began Feb. 25, when a worker's collective, along with private investors, bought a meat-processing plant in Odessa.

The Lvov auction is "the fairest way to legalize this shadow economy that has made the poor even poorer and the rich even richer," says Pavlo Kachur, the city's deputy mayor.

Under Soviet rule, private enterprise was outlawed but continued in a "shadow" economy, dominated by organized crime groups. Income from this trade mafia remains hidden, and Mr. Kachur hopes it will return to the economy through reforms.

Only Ukrainian citizens could bid in the auction, which sold off the assets of 17 small businesses for between 2.4 million and 110 million karbovantsi (between $1,200 and $55,000), 20 times higher than expected. Because Ukraine has yet to privatize real estate, property leases for periods averaging five years were factored into the starting prices.

"Of course I'm nervous," says Irina inside her newly purchased shop. "I still don't fully trust the authorities. It'll be difficult, but at least now my future depends mostly on me."