Ukraine on the brink.

YUZHMASH is the factory Nikita Khrushchev had in mind when he said that the Soviet Union was "making missiles like sausages." Behind a grim perimeter fence at Yuzhmash, in the city of Dnepropetrovsk in southern Ukraine, fifty thousand workers produced all the Soviet strategic missiles, from the SS-4 of the Cuban Missile Crisis to the giant SS-18 with its ten independent nuclear warheads.

With demand for strategic missiles slack of late, the factory has tried to diversify. Satellites for civilian use are still assembled here, but the vast hall in which the missiles were assembled now houses an assembly line for trolleybuses. When each trolleybus is completed, a team of rocket scientists in white coats pushes it out into the yard, where the vehicle is connected to electric wires and driven out into town. The factory also makes microwave ovens, aircraft parts, and, this year alone, 35,000 tractors.

It could produce more, except that the diesel engines--as well as, on average, 70 per cent of the components of all Yuzhmash's products-come from other republics of the former Soviet Union, mainly Russia.

"What would a trade war with Russia mean for you?" I asked Yuri Alekseyev, the factory's bright new director, in an office filled with missile and satellite scale models.

"Utter disaster," he replied cheerfully. "We have already laid off three thousand workers. Without cooperation with Russia, we cannot function." He could have added that the factory will also go bust if anything like normal monetary discipline is enforced. While adamantly denying that Yuzhmash survives on subsidies, Mr. Alekseyev admitted that he received credit at 15 to 18 per cent per annum--at a time when the weekly inflation rate amounted to almost as much.

Yuzhmash is not unique. Eighteen hundred other Ukrainian companies in the quaintly named Ministry for the Military-Industrial Complex (and Conversion) jointly employ over three million workers and account for over 35 per cent of all Ukrainian output. Once, these were among the best Soviet enterprises; most now face disaster. Ukraine could, for example, make the eminently saleable T-80 tank, except that the 122mm cannon and the explosive reactive armor--the very things that make it such a feared machine-are made in Russia.

That is the story of Ukraine as a whole. Ukraine was a relatively wealthy part of the USSR--as California is of the United States. California on its own could be a major industrial power--provided it continued trading with the rest of the United States. But sever California from the other states by a customs barrier, give it a currency which nobody accepts, and appoint as governor an old ACLU hack, and California would be heading in the same direction as Ukraine.

The moral of the tale would not be lost on Leonid Kuchma, Ukraine's new prime minister, who was managing director of Yuzhmash until last month. His appointment is the last-ditch attempt by the surviving elements of the Soviet industrial elite to run a command economy by the old ways. If Mr. Kuchma--one of the brightest and best of the old military-industrial complex-cannot do it, nobody can. But then, Mr. Kuchma's Communist political patrons might be in for a surprise. His colleagues at Yuzhmash stress his passionate dedication to market reform and privatization.

Despite President Leonid Kravchuk's high-profile nationalist declarations, the hard fact is that Ukraine is not yet truly independent. True, there are many outward signs of sover-eignty. Thirty embassies have opened up in Kiev since independence was declared exactly one year ago. The city's hotels can hardly cope with the influx of correspondents, consultants, and bankers. Local mafiosi, who only two years ago were small-time money changers dressed in track suits, today drive BMWs and wear Armani. From a provincial backwater Kiev is slowly transforming itself into a capital, albeit a Third World one. But the border with Russia exists only on maps, the currency is funny money that can be crippled at a stroke, and, above all, Ukraine's political leadership is still firmly of the old Soviet Communist stable. This schizophrenia is well reflected at the Kiev international airport. A quarter of the planes on the tarmac still sport the Soviet red flag with hammer and sickle on their tails, another quarter are marked "Aeroflot" but with the red flag painted over, and only one, brightly painted all over in the national yellow and blue, proclaims: "Ukrainian Airlines." Vyacheslav Chornovil, a leader of the largest opposition movement, Rukh, says: "This is not a state, yet. It's an amoeba."

The time of testing for Ukraine's resolve is approaching fast. Mr. Kuchma has already faced a major crisis in his first days in office. Ukraine's ersatz money is the kupon, a purely cash currency which was exchanged for the ruble at par when paid into a bank. The system worked to Ukraine's advantage because Ukraine printed as many kupons as were necessary to cover its budget deficit and then drew unlimited ruble credits from Moscow. It amounted to exporting Ukrainian inflation into Russia. Recently, however, Moscow has not only cut the credit line but also demanded hardcurrency payment for oil and gas. Instantly, the kupon's market value started to plunge--it went from 480 to the dollar to 530 in only a few days while I was in Kiev. For lack of gasoline, traffic in the eastern city of Donetsk almost ceased.

Sooner or later an economic implosion is inevitable. Ukraine enjoyed a trade surplus as long as it charged high prices for its agricultural produce and paid a pittance for raw materials. The coming economic reckoning will impose on Ukraine an unenviable decision: either to continue to tie its economy to Russia's--and be dragged into a hyperinflationary black hole together with its neighbor--or try to cut the umbilical cord by introducing a truly separate currency--and then pay for raw materials at world prices. Either way, living standards will drop dramatically, and popular support for independence with them. That support was always founded on an error. Millions of people believed that an independent Ukraine would be richer than either the Soviet Union or Russia. That is still true in the long run, but in the short run, if the Russian-speaking people of Doneck in eastern Ukraine see themselves as worse off than their relatives in the border cities of southern Russia, they will think again about independence. Moscow has already shown in Lithuania how effective an oil embargo can be in influencing local politics. If, at a critical moment, Moscow were also to agitate the Russian speakers east of Kiev, then Ukraine would find it difficult to resist the pressure.

Ukraine is ill prepared for the looming crisis. Its parliament is still that of the Soviet Socialist Republic of Ukraine. Its president, Leonid Kravchuk, former ideology secretary of the Ukrainian Communist Party, has appointed old Party chiefs as his provincial prefects. Ukraine's economic reforms drag behind even Russia's. And the former anti-Communist opposition is divided. Radicals advocate new parliamentary elections and a great leap forward into a market economy, but the majority support President Kravchuk's half-hearted efforts.

And yet, the birth of an independent Ukraine is one of the most important strategic developments in this part of Europe this century. Its success is vital to Western interests.

Moscow became a proper European power in the first place when it snatched Ukraine from Poland at the end of the eighteenth century. Without it, Russia's presence in the "common European home" is much diminished.

Ukraine is a tripwire for any resurgence of Russian expansionism. It is the one former Soviet republic in whose loss even Russian democrats have trouble acquiescing, let alone the Soviet generals who now seem to be running security policy in the Kremlin. Were a new, unfriendly regime to come to power in Moscow, its aggression would first turn against Ukraine.

As long as the Ukrainian buffer is in place, however, the immediate pressure is off Eastern Europe, while Western Europe is positively snug behind those two lines of defense. A safe Eastern Europe is an Eastern Europe eligible for integration into the economic and security structures of the West. And a Westernized Eastern Europe gives the best promise of eventual admission for Ukraine and ultimately for Russia.

Naturally, the West cannot solve Ukraine's problems for it. Ukrainian leaders, just like other post-Communist leaders, must themselves have the courage to face the ghastly truth about the mess their country is in. As long as they talk of delaying market reform because "the price of reform is too high," we can be sure that they still have not understood that the price of not reforming is very much greater. But the worst thing the West could do would be to play up to their ignorance and illusions. In strictly economic terms, post-Communist countries are not much more than extreme versions of Latin American basket cases, and should be treated accordingly, by insisting on the same common-sense standards that apply universally: of sound money, budgetary restraint, and denationalization.

What the West can do is to treat Ukraine fairly. Margaret Thatcher, when she said in Kiev that she would no more consider establishing a British Embassy there than in Texas, and George Bush, when he made his "chicken Kiev" speech, made the same error. They followed the advice of Kremlinologists in their respective foreign-policy establishments--that is, people who, through decades of conditioning, still look at Eastern Europe through Moscow's eyes. The same pattern continues today. Russia gets a gentle slap on the wrist when it sells weaponry to the West's enemies, but when Ukraine tries to sell even its peaceful missile technology to Australia-as recently happened all hell breaks loose. Kiev remembers all too well that the security guarantees Ukraine received from the U.S. in return for giving up its tactical nuclear missiles have proven to be bogus. Today Ukraine retains over a hundred ballistic nuclear missiles. It is in nobody's interest for the West to further a sense of grievance in a volatile country on the brink of disaster.

Mr. Sikorski, NR's roving correspondent, was briefly Polands deputy defense minister.