Having Shed Red Yoke, Latvia Battles Red Ink, Black Market

FIFTY yards from Latvia's first McDonald's, laughing children sled down the side of the low Bastejkalns hill opposite where, in 1991, Russian gunfire struck down most of its victims.

This tiny country wedged between Russia and the Baltic Sea has had a difficult path to follow since ''The Days of the Barricades'' in January 1991. Then, tens of thousands of Latvians gathered around key government buildings in Riga's medieval Old Town, armed only with their bare hands, songs, and an icy determination to resist Soviet oppression. They came in response to appeals by the pro-independence government after the Soviet Army shot 14 unarmed civilians in neighboring Lithuania.

A little more than seven months later, their hopes would be fulfilled when Latvia and its neighbors, Estonia and Lithuania, regained independence after a failed coup in Moscow on Aug. 19, 1991.

Today, European-built Fords, VWs, and Volvos crowd out the Ladas, Moskvitches, and Zaporozhets from the Soviet era. The air in Riga, the capital, is polluted, and the streets sometimes gridlocked by all the new traffic, but the downtown air no longer has the ''Soviet'' smell of hundreds of cars burning 76 or 92 octane Russian fuel.

Commemorations of the Barricade Days, always solemn, seem especially muted on this fifth anniversary. People here say that national unity is gone forever, replaced by a pessimism about the future and cynicism about independent Latvia's present-day conditions.

At night, the downtown is lit with bright lights from hundreds of shop windows, offering everything from Whirlpool washers to Lay's Potato Chips. But for the old, and those unwilling or unable to adapt to the often-harsh market economy, the 1991 slogan ''Freedom, even if it is in peasant's clogs'' is now reality. With the average pension and minimum wage at around $60 a month, a large part of the population can't make ends meet.

Tens of thousands have simply not paid their ''rent'' (a nominal fee for living space, plus hefty charges for heat, electricity, gas, and hot water - sometimes as high as $100 for three rooms in the winter) to the public authorities that still manage most Latvian housing. The public utilities have been left with a huge cash shortage, unpaid bills from suppliers, and are in arrears on energy bills to Russia.

But the government cannot afford to pay anyone's bills. Latvia is running a huge budget deficit for a nation of just under 2.5 million people. The deficit was about $180 million last year and is expected to drop to $120 million for 1996 if budget cuts pass parliament and tax revenues don't continue to limp as they have during the past year.

But the abundance of Western cars in the streets and the brisk business done by appliance and furniture shops show that Latvia has a slowly growing middle class that derives much of its income from the ''gray'' economy. A local lawyer working for a Latvian company, for example, is officially paid $400 per month. But he actually takes home four-and-a-half times that amount.

''I'd say the unofficial economy has grown rapidly the last couple of years,'' says a North American automobile importer, who feels the strength of the ''off-the-books'' economy in his business. But he is demoralized by the corruption - especially when he is hustled for bribes by the motor-vehicles registry.

And, a Canadian entrepreneur recalls that ''it took me two weeks to find someone who would lay a floor and give me a receipt. For cash, no questions asked, I would have had it done the same afternoon that I decided I needed the repairs.''

The new prime minister, Andris Skele, is a businessman who patched together a coalition following the October 1995 elections. He has called Latvia's national debt ''a catastrophe'' and has spoken forcefully in favor of measures to streamline privatization and to help attract more foreign investment. His words have gained him favor from the foreign business community, but doubts remain whether his coalition of ex-Communists, moderates, and nationalists can stay together until elections in 1998.

Einars Repse, the head of the central bank, warns the country will have to get new international credits to pay off old debts, since a balanced budget is unlikely for the next few years.