The biggest country in Europe is at the bottom of the table

The Ukraine's economy may have a very long way to go, but then so did Britain's just a few decades ago
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The Independent Online
IF YOU want to go back in time fly to the other side of Europe. There is a country with a population much the same as Britain, but one which resembles Britain of the late 1940s - the Britain that anyone older than their mid-50s will recall.

The war-time bomb damage is still evident, with many fine 19th century buildings in the capital still just facades. There are few cars on the roads and no parking meters. There are power cuts and dim street lights to save energy. Petty bureaucracy remains triumphant, with strings of permits needed for anyone who wants to start a business. There are naturally currency restrictions, stopping people taking too much money out of the country. Personal taxation is crippling, so people get round the system by using wads of cash and trading in the "informal" economy. While rationing has now ended the supply of basic goods remains uneven. The place is poor, of course, but the overwhelming impression in the capital at least is not so much one of poverty but of a monochrome drabness. Yet on paper this same country has everything going for it: the best quality land in Europe, a well-educated population, the possibility of being self-sufficient in energy in five years, a sub-tropical coastline, layers of culture.

The country is the Ukraine, and I have just returned from a, yes, delightful and moving weekend in Kiev.

If you write about economics I suppose you inevitably tend to see countries through their economies. Ukraine is a fascinating conundrum, because despite its natural advantages it is - with I suppose the exception of parts of the former Yugoslavia - the least successful economy in Europe. It is one of the few places in the world where the rouble is regarded as a strong currency. Seven years into independence, the process of economic reforms has only just begun and the level of GDP has fallen, on the official figures, to something like one-third of its level before the break-up of the Soviet Union. In fact it is the only former USSR country where GDP is still falling. True, the official figures will be wrong, for more than 60 per cent of the economic activity is in the informal economy, but even allowing for that, things are pretty bad.

Is it hopeless? Well, no, for a whole series of reasons including one very big one.

For a start a lot of Western money and expertise is going into the place. Ukraine has the third largest programme, after Israel and Egypt, of USAID, the American government's main aid effort. The IMF and World Bank are in there - not always with the most successful results, and there are problems at the moment with the IMF lending; but there is a solid commitment. We are there with the excellent Know-how Fund, which finances advice and which has been very important in helping to lift the economies of countries such as Poland. Other Western governments are there too.

Now you can be cynical about this effort and I am sure that not everything that the West is doing or paying for is appropriate. But we are not flying completely blind, as we were at the beginning of the 1990s, when we had no experience at all in converting a Communist, centrally planned economy into a democratic, market one. Besides, as the rest of Eastern Europe pulls up, with Poland, the star hitting 6-7 per cent growth, even the laggards will be pulled up too.

Next, there are enormous natural assets. I was told the famous black earth, the most fertile soil in Europe, really is as wonderful as it has been billed. The cultural assets are evident in Kiev: the churches, the pastel-painted 18th and 19th century facades, the choirs - half close your eyes and Kiev could be Prague. The Black Sea coast is the Mediterranean without the hordes. And there is that most important form of natural asset, the human capital not only of the well-educated population but also the diaspora - the millions of Ukrainians particularly in the US and Canada.

Western companies are in there: McDonald's has opened, which you might not immediately think of as a great cultural import, but remember that it is teaching Ukrainians the concept of service and its employees will be able to go off and apply the lessons they have learnt to other businesses. There is as yet no Western quality hotel in Kiev (which will lead to some fun when the EBRD has its annual meeting there in May) but are lots of small signs of Western quality service emerging: small supermarkets, restaurants and the like. There are many well-dressed and stylish people in the streets. It is, apparently, much easier for a Westerner to live in Kiev now than it was even two years ago.

But there is one thing that seems to me to be larger than any of these. It is that we have been there too.

In the 1940s we had extraordinary restrictions on our companies, which had, for example to get permits, which were often refused, if they wanted to expand. We had rationing, so that there was a flourishing black market in rationed products. These regulations created exactly the same change in the balance of power between bureaucracy and citizen: you had to be nice to the shopkeeper or the official. We had exchange controls. We had wage controls.

In fact some of these petty, absurd, restrictions lingered until the 1970s. You had to wait months for a telephone. There was the pounds 6 limit on wage increases. We had the visit from the IMF and Denis Healey warning of the danger of riots in the streets.

If it took us more than 40 years to eliminate a command economy relic like exchange controls, it is reasonable for a country like Ukraine to take a while to get rid of its command economy mentality too. Meanwhile, it remains a sad, but ultimately hopeful, reminder of a Britain mercifully long past.