Independent Ukraine Finds Allies in Russia, Foes in Moscow

ANALYSIS

RUSSIAN President Boris Yeltsin's quick recognition of Ukrainian independence after a landslide referendum Dec. 1 was welcomed here.While the Ukraine is ready to wave goodbye to any political or even economic union with former Soviet republics, it is eager to pursue direct ties with Russia and other republics. "I believe we already have a union with Russia, a bilateral agreement, as well as with other republics," said newly elected Ukrainian President Leonid Kravchuk. From Soviet President Mikhail Gorbachev on down, officials of the remaining central government in Moscow have greeted the Ukrainian independence vote far differently than the Russian government. Mr. Gorbachev expressed the clearly outdated hope that the Ukraine might still decide to sign a new treaty on political union, which he has been touting of late. Ivan Silayev, chairman of the Interstate Economic Committee and effectively the Soviet prime minister, had a more threatening tone. In an interview with the French daily Figaro published Dec. 2, he warned that "if the Ukraine decides to break off ties with the economic union, we shall be building relations with it as a foreign state." This means trade will be based on world prices and payable in convertible currencies such as dollars. If a Ukrainian currency is created, it will not be accepted, he added. "The Ukrainian economy is not ready for all these measures," Mr. Silayev warned. "The Ukraine will suffer heavy losses if it decides to isolate itself from other republics." But a Russian government spokesman in Moscow said such statements did not reflect their views. "There can be no question of payments in freely convertible currency in trade between Russia and the Ukraine, because neither has that currency," Cabinet spokesman Alex Ulyukaev told the Monitor. An agreement on payments will be worked out, he added, predicting a calming of economic tensions. The Ukrainian government has signed the treaty to form an economic community, but it has since made it clear in numerous statements that it interprets this document very narrowly. Vladimir Nauminko, a young economist who heads the president-elect's team of economic advisers, sees no need for an economic union at this point. Ukrainian needs can be met through bilateral agreements. The only role for central institutions should be strategic forces and maintenance of infrastructure such as railways, pipeline s, and communications, he says.

New Ukrainian currency The Ukraine plans to introduce its own currency, the grivna, by May or June of next year. But it is far from clear how the Ukrainian economy will interact with the rest of the Soviet republics in the interim or even after that point. During the past year, the Ukrainian government has tried to protect its internal market, barring a flow of food and consumer goods to other republics. Ukrainian citizens were given coupons for up to 70 percent of their salaries in an attempt to restrict the purchases from non-Ukrainians. But such steps have failed, as evidenced by severe shortages of goods such as butter, which collective farms have been selling to Russia or even Poland to fetch higher prices. This problem is likely to become more acute when the Russian government moves ahead this month with a decree freeing almost all prices from state control. The Ukrainians do not plan to free their prices until after introduction of their own currency, says Mr. Nauminko, giving incentive for more goods to flow illegally across the porous border. Mr. Kravchuk has been slow to formulate economic-reform plans, says economist Greta Bull, who heads a Harvard University project on economic reform in the Ukraine. "The Ukraine isn't acting, it's reacting," she says. "Russia is going to be the thing that pushes them to reform. The choice is to close off or go forward.... I think it will be impossible to close these borders off." So far, however, the policy pursued by Premier Vitold Fokin has been a combination of isolationism and support for economic union. Mr. Fokin is closely identified with the old Communist-controlled state bureaucracy and criticized for his decision to sign the economic union treaty. He opposes radical reforms. The group of people around Kravchuk's adviser, Nauminko, favors more rapid steps to a market economy. The core team of 27 people includes younger managers of state-run enterprises whose principal model for reform, by Nauminko's own description, is the "shock therapy" approach carried out in Poland. The advisory team has prepared a package of decrees that were to be announced on Dec. 5, the day of Kravchuk's inauguration as president, Nauminko says. The decrees focus on creating a mechanism for privatization, though not of land, which remains a touchy issue in the Ukraine. Price liberalization, free-ing of trade, and the beginning of a three-to-four-year process toward internal convertibility will follow the currency introduction.

Spiraling inflation The rapidly declining value of the ruble, as inflation spirals in Russia, is a major concern in both Russia and the Ukraine. For the Russians, the fear is that the introduction of separate currencies will bring a flood of rubles back into Russia, seeking goods and pushing inflation even higher. The Ukrainians want to get rid of the huge amount of rubles in their hands - about 180 billion to 190 billion according to Nauminko - fearing that when these are exchanged, the value of the new currency will be d riven down. The Ukraine, a country of 53 million with rich agricultural and mineral resources, will try to shift its trade away from the former Soviet republics to the West. This will be difficult, as evidenced by the problems faced by Poland and other Eastern European economies whose integration with the Soviet economy is even less than that of the Ukraine. But though the transition may be difficult, "they are better off outside of the union," says Ms. Bull. "If the Ukraine adopts the right economic policies ... th ey could do very well in the long-run. In three to four years I would be pleased if the Ukraine is where Poland is now."