UKRAINE belongs to the ranks of the late reformers. Ukraine's first president, Leonid Kravchuk, failed to make a decisive break with the past, instead combining Soviet-style economic micromanagement with the introduction of elements of a market economy. For the first three years of the transition, Ukraine trailed the pack of former Soviet republics in terms of every major indicator: Inflation was high, reaching a 10,200 percent annual rate late in 1993; privatization was nonexistent; GDP was falling steadily; and corruption was ubiquitous. Ukraine's second president, Leonid Kuchma, has followed a policy of stop-and-go reform that delayed macroeconomic stabilization and prevented structural adjustment in the agricultural, energy, and industrial sectors. Although Ukraine eventually achieved a shaky macroeconomic stabilization, political instability and an ill-defined division of powers blocked the government's efforts to liberalize and deregulate the economy until after the third presidential election at the end of 1999. The result of this delay was rampant economic mismanagement. “Among the post-socialist countries that have avoided military conflicts,” wrote Viktor Yushchenko and Viktor Lysytskyi, “independent and democratic Ukraine is the undeniable leader in the rate of price increases, the decline in the scope of production, and in the population's standard of living.”1 The cumulative decline of GDP from 1991 to the end of 1998 was more than 60 percent. Ukraine is the best argument against the gradualist approach to economic reform in former Communist countries.
The IMF required the former Soviet republics to provide some evidence of their readiness to launch market reforms before agreeing to finance their programs, and it was not until 1994, after three years of high inflation and declining production, that Ukraine first qualified for an IMF program. Ukraine managed to impose a provisional stability on financial markets in 1996, but stabilization remained a hostage to microeconomic reforms. Like Russia, Ukraine developed a vibrant barter economy that concealed the profits of enterprises that kept their export earnings offshore as well as the losses of enterprises____________________