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Newsline - September 10, 1997




ROKHLIN EXPELLED FROM OUR HOME IS RUSSIA FACTION

State Duma deputies from the pro-government Our Home Is Russia voted on 9 September to expel Lev Rokhlin from their ranks. Rokhlin was one of the movement's leading members and is the chairman of the lower chamber's Defense Committee. He recently sharply criticized plans to reorganize the armed forces. Rokhlin told reporters he will leave the parliamentary faction but does not intend to give up the chairmanship of the committee. He warned that if deputies try to oust him from that post, the issue will have to go before the full house. But Prime Minister Viktor Chernomyrdin, a founding member of Our Home Is Russia, said the chairmanship has been granted to the movement, which, he said, will nominate deputy Roman Popkovich to the post, ITAR-TASS reported.

RUSSIA, CHECHNYA SIGN OIL TRANSIT AGREEMENT

Russian First Deputy Prime Minister Boris Nemtsov, who is also fuel and energy minister, and President of the Chechen state oil company (YUNKO) Khozh-Akhmed Yarikhanov have signed five agreements that will enable Azerbaijan to export 200,000 metric tons of "early" Caspian oil via Chechnya beginning, as planned, in early October. Chechnya will receive $854,000 from the federal budget, and the Russian pipeline company Transneft will pay Grozny $0.43 for each metric ton of oil exported, Russian media reported on 9 September. The federal allocation comprises $1.60 per ton in transport tariffs and a lump sum toward repairs to the pipeline, which are expected to be completed within the next month. Yarikhanov told ITAR-TASS he was "satisfied" with the deal but did not exclude more negotiations to set new terms for the export of oil beginning 1 January 1998.

GROZNY POSTPONES PLANNED EXECUTIONS

Chechen prosecutor-general Khavazh Serbiev announced on 10 September that the public execution of two men convicted of murdering a family has been postponed, Reuters reported. The execution was due to take place later that day. Said-Khasan Khadzhiev, the press secretary of the Supreme Religious Court, told ITAR-TASS that only the Chechen president can take a decision on the public execution of convicted criminals. Khadzhiev also denied Russian media claims that some 30 people are awaiting execution in Chechnya, saying there are only two. The televised execution on 3 September of a couple convicted of murder elicited widespread condemnation in Russia and abroad. Chechen Deputy Prosecutor-General Magomed Magomadov told ITAR-TASS that public executions are a "temporary phenomenon" and will be discontinued as soon as the crime rate is "normalized."

DUMA APPROVES SHOKHIN'S REPLACEMENT

Duma deputies on 10 September approved the candidacy of Vladimir Ryzhkov as the lower chamber's first deputy speaker. Ryzhkov is a member of the Our Home Is Russia faction. He replaces Aleksandr Shokhin, who vacated the post to take over the faction's leadership from Sergei Belyaev. Belyaev recently quit the movement, saying its policies had become too closely linked with those of the government.

PROCURATOR-GENERAL INVESTIGATES NEMTSOV'S CLAIM ON PHONE TAPPING

The Procurator-General's Office has launched a criminal investigation into alleged eavesdropping on First Deputy Prime Minister Boris Nemtsov's telephone conversations, Russian media reported on 9 September. Nemtsov asked the office to investigate how the newspaper "Novaya Gazeta" obtained the transcript of a telephone conversation he had with businessman Sergei Lisovskii.

U.S. CARRIER FILES COMPLAINT AGAINST AEROFLOT

United Airlines has filed a formal complaint with U.S. aviation authorities against Aeroflot in a bid to have the Russian carrier banned from landing in Washington, Chicago, and San Francisco, U.S. media reported on 9 September. The U.S.-based airline said it filed the complaint after Russian officials disallowed United Airlines-Lufthansa flights to Moscow despite a 1993 agreement between Russia and the U.S. allowing such cooperative flights. United Airlines also said Russia rejected an application to use a recently established air route over Russia's Far East. Cyril Murphy, United Airlines vice president for international affairs, said Russia's actions are damaging not only to U.S. airlines but also to Russian ones.

RUSSIA TO BUILD FLOATING NUCLEAR POWER PLANT

Russia plans to build a floating nuclear power station off the Chukotka peninsula to provide electricity to remote areas of northern Siberia, ITAR-TASS reported on 10 September. A decision to build the power station, which will be based on a submarine, was reached in a meeting between the Minister for Atomic Energy Viktor Mikhailov and the governor of Chukotka, Aleksandr Nazarov. The new nuclear station is intended to replace the aging coal-powered electricity plant in the remote Chukotka town of Pevek. It is expected to be operational by 1999.

NEW DAILY NEWSPAPER GOES ON SALE

A new daily appeared on Moscow's newsstands on 9 September. Leonid Zlotkin, editor-in-chief of the "Russian Telegraph," told Reuters that Oneximbank, Russia's third largest commercial bank, is a major investor in the newspaper. Oneximbank has been eager to boost its involvement in the media and already has a stake in many regional and several national newspapers. Zlotkin said the daily will be a "bourgeois, conservative newspaper" that will have a strong business bias but will also provide serious coverage of politics, diplomacy, and culture. "Russian Telegraph" will soon be available in major cities across the country, according to its editors.

HISTORICAL MUSEUM PARTLY REOPENED

The State Historical Museum, a landmark building flanking Moscow's Red Square, partly reopened on 9 September following renovations that have lasted for 11 years. The museum opened 13 of its more than 40 exhibition rooms in a ceremony attended by Prime Minister Chernomyrdin and representatives of the federal government, city administration, and the Russian Orthodox Church. Chernomyrdin promised that the government will come up with funds to finish restoration work in the "near future."

RUSSIAN-GEORGIAN VODKA WAR INTENSIFIES

Russian government minister Yevgenii Yasin said on 9 September that Moscow will not allow the alcohol convoy currently detained at the Georgian-Russian frontier to enter the Russian Federation because the owners of the spirit do not have licenses, ITAR-TASS reported. The Russian government reportedly issued a ban on imports of alcohol from Turkey via Georgia in February 1997, but border guards began systematically implementing it only in July. Since that time, several hundred trucks have been stranded at the border. "Krasnaya zvezda" estimated on 4 September that those trucks contain enough raw alcohol to manufacture 50 million bottles of vodka. Georgian President Eduard Shevardnadze insists that documentation for the transit shipments is legally valid. He also accuses Russia of attempting to undermine international confidence in Georgia's merits as a transit corridor. Helicopters are now being hired to airlift the alcohol across the frontier.




GEORGIAN-ABKHAZ TALKS RESUME

Georgian, Russian, and UN representatives met in Sukhumi on 9 September for two-day talks with the Abkhaz leadership, Russian media reported. Lander Tsaava, the deputy chairman of the Abkhaz parliament in exile and a member of the Georgian delegation, told Interfax that the talks will focus on Abkhazia's future political status and conditions for the repatriation of ethnic Georgians forced to flee during the 1992-1993 war. Russian First Deputy Foreign Minister Boris Pastukhov commented that the main issue will be Abkhazia's future status. "Nezavisimaya gazeta" on 10 September, however, quoted Abkhazia's permanent representative in Moscow Igor Akhba as saying that economic and humanitarian issues will be discussed. Meanwhile in Tbilisi, Georgian Defense Minister Vardiko Nadibaidze said his army is ready to "resolve the Abkhaz problem by force" if President Eduard Shevardnadze issues the appropriate orders.

AZERBAIJAN TO DELAY OPENING EMBASSY IN ISRAEL

Israfil Vekilov, Azerbaijan's ambassador to Egypt, said in Cairo on 9 September that opening an Azerbaijani embassy in Israel is contingent on a settlement in the Middle East, AFP reported. Israel has an embassy in Baku. Vekilov called on Arab countries to open diplomatic representations in Azerbaijan. He also deplored the lack of trade between his country and the Arab world. "Literaturnaya gazeta" on 3 September reported that Azerbaijani President Heidar Aliyev has repeatedly postponed an official visit to Israel, originally scheduled for 1995, in order to avoid further exacerbating Baku's already strained relations with Iran.

AZERBAIJANI OPPOSITION PROTESTS TRAVEL RESTRICTIONS

Deputies of the opposition Azerbaijan Popular Front on 9 September appealed to Interior Minister Ramil Usubov to protect their constitutional right to travel within the country, Turan reported. Four members of the front were detained by police at Nakhichevan airport on 6 September and ordered to return to Baku (see "RFE/RL Newsline," 8 September 1997). The Nakhichevan Interior Ministry broadcast a statement on national television claiming that local police had discovered a cache of weapons believed to belong to the front in the village of Keleki, where former President Abukfaz Elchibey has lived since fleeing Baku in June 1993. The front issued a statement on 8 September denying having stockpiled arms in Keleki.

MORE EXPLOSIONS IN TAJIK CAPITAL

Four small bombs exploded in the Dushanbe area early on 10 September, RFE/RL correspondents reported. The bombs, planted in districts adjoining the main route to the airport, went off within several minutes of one another. No one is reported injured, but the explosions are expected to further delay the arrival of United Tajik Opposition leader Said Abdullo Nuri from Tehran.

PLANS TO PROTEST NATO EXERCISE IN KAZAKHSTAN

The Almaty committee of the Workers Movement on 9 September announced it is organizing a demonstration in front of the U.S. embassy on 12 September to protest NATO-sponsored military exercises, according to Kazakh Commercial Television and Reuters. A statement released by the committee noted that NATO is "already on the borders of Russia, Ukraine, and Belarus." The exercise is scheduled to take place in southern Kazakhstan and northern Uzbekistan from 14-21 September under NATO's Partnership for Peace program. Troops from U.S., Turkey, Russia, Georgia, Latvia, Kazakhstan, and Uzbekistan will be taking part.

IMMINENT MEAT SHORTAGE IN KYRGYZSTAN?

Minister of Agriculture and Water Resources Jumakadyr Akineyev is quoted in the 5-12 September issue of "Pravda-5" as saying number of sheep in the country has decreased by more than half. Sheep are traditionally the most important, and least expensive, source of meat in Kyrgyzstan. According to Akineyev, their number has dwindled in the last few years from some 10 million to 2-3 million. The minister blamed the overuse of easily accessible grazing lands and financial constraints on most herders preventing them from reaching remote, virtually untouched pastures. The minister conceded that it currently costs some $200 to raise a sheep for two years and its sale price is only $80. He added that there may be meat shortages and accompanying higher prices later this year.




OSCE AGAIN EXPRESSES CONCERN OVER BELARUS

The Organization for Security and Cooperation in Europe has again urged Belarus to accept its offer to provide assistance in developing a democratic form of government, an RFE/RL correspondent reported. A spokesman at OSCE headquarters in Vienna said on 9 September that the organization is ready to resume negotiations on opening an OSCE office in Minsk. Belarus gave preliminary permission in June but stopped the negotiations in July following a dispute with the OSCE's Parliamentary Assembly. The spokesman said the organization remains concerned about developments in Belarus and the political situation there. Belarusian Foreign minister Ivan Antanovich is scheduled to discuss the proposed mission at a meeting of the OSCE Permanent Council in Vienna on 18 September.

WORLD BANK MAY REVIEW ITS UKRAINE PROGRAMS

Edilberto Segura, the World Bank's mission chief in Kyiv, told journalists on 9 September that the bank may need to refocus its programs in Ukraine now that the country has a new leadership. Segura spoke after meeting with Prime Minister Valery Pustovoitenko. The bank recently suspended a $317 million electric utility loan because the parliament did not raise electricity rates, as required to receive the loan. Second tranches on two other loans--$150 million for restructuring the coal industry and $150 million for agricultural projects--have not been released because Kyiv has failed to meet the necessary criteria. RFE/RL's Washington correspondent reports that Paul Siegelbaum, the bank's Washington-based director for Ukraine and Belarus, will travel to Kyiv in mid-October.

BALTIC LEADERS ON EU ACCESSION

Estonian Foreign Minister Toomas Hendrik Ilves told Radio Estonia on 9 September that Tallinn should not demand that Latvia and Lithuania be admitted to the EU in the first round of expansion since this would mean "we put the European Commission's July decision [to recommend Estonia] in doubt," BNS reported. But he said Tallinn should support the aspirations of its Baltic neighbors "in some way." In Riga, Premier Guntars Krasts again remarked that cooperation between the Baltic States will be endangered if accession talks are started with only Estonia. He argued that Tallinn has already lost interest in the proposed Baltic customs union. And in Stockholm, Lithuanian Premier Gedeminas Vagnorius told a congress of the European People's Party that a decision not to include Lithuania in the first wave would leave the country vulnerable to Russian pressure. He noted that relations with Moscow are now good but added there is uncertainty about the future.

VILNIUS COMMEMORATES TALMUD SCHOLAR

The Lithuanian capital has begun commemorating the 200th anniversary of the death of the Gaon of Vilnius, BNS and dpa reported on 9 September. Highlights of the state-sponsored, week-long event include a ceremonial parliamentary session remembering the Talmud scholar and a concert and reception hosted by President Algirdas Brazauskas. Four torahs are to be handed over to the Vilnius synagogue in a special ceremony. The Israeli-based Simon Wiesenthal Center has called for a boycott of the event, arguing that Lithuania has failed to prosecute individuals suspected of involvement in the persecution of Jews during World War Two.

POLAND ADOPTS PLAN TO MODERNIZE ARMY

The government on 9 September adopted a 15-year plan to modernize its armed forces at a cost of tens of billions of zlotys. President Aleksander Kwasniewski told reporters that Poland has a "very concrete program" for modernizing the armed forces until the year 2012. Forces will be cut from 220,000 to some 180,000 and military service shortened to 12 months. Prime Minister Wlodzimierz Cimoszewicz said equipment needs include anti-tank missiles and electronic devices for Poland's Huzar helicopter. The helicopter deal is being contested by Israeli firms and a consortium led by the U.S. Boeing company and backed by NATO states. Kwasniewski said a final decision will be made only after the 21 September parliamentary elections.

CZECH DEFENSE BUDGET WILL BE INCREASED

Following his meeting with President Vaclav Havel on 9 September, Defense Minister Miloslav Vyborny told journalists that the promised Defense Ministry budget increase is not threatened. "If Finance Minister [Ivan Pilip] proposes something else, he is not so much in disagreement with me as with the government's decree," Vyborny said. He and Havel agreed that the 1998 defense budget must be increased by 0.1 percent of GDP, as the Czech Republic has pledged to NATO. Pilip said after meeting with Havel later the same day that "because so many cuts are having to be made elsewhere, voters need to be shown that money is being well spent on the army." He told Czech Radio he was proposing that if the defense budget rises by 0.1 percent of GDP next year, a commission monitoring sales and procurement of army equipment should be set up and clear rules established for the tenders.

SLOVAK CONSTITUTIONAL COURT RULES ON LANGUAGE LAW COMPLAINTS

The Constitutional Court on 9 September ruled that a provision in the language law requiring all Slovak citizens to use the Slovak language when writing to state bodies is unconstitutional, RFE/RL's Bratislava bureau reported. Opposition deputies filed the complaint against the provision. The constitution guarantees ethnic minorities the right to use their mother tongue in official contacts. The court, however, did not uphold 10 other opposition complaints against the language law, saying that a number of mistakes were made in filing them. Court chairman Milan Cic said that if the deputies had used different legal arguments, the final results might have been different.

HUNGARY CRITICIZES SLOVAK PROPOSAL ON MINORITY EXCHANGES

Hungarian Foreign Minister Laszlo Kovacs told the parliament on 9 September that a Slovak proposal for ethnic Hungarians in Slovakia to resettle in Hungary violates a friendship treaty between the two countries. Kovacs said he will do his best to bring international pressure on Slovak Prime Minister Vladimir Meciar to abandon the idea. Meciar told a rally of his ruling Movement for a Democratic Slovakia on 4 September that he had proposed Hungary accept any ethnic Hungarians who do not want to live in Slovakia. Slovak authorities have denied that Meciar made the proposal during talks with Hungarian Prime Minister Gyula Horn, but Horn says he did. There are some 500,000 ethnic Hungarians living in Slovakia.

HUNGARIAN SCREENING PANEL URGES FINANCE MINISTER TO RESIGN

The panel examining the communist past of senior officials has called on Peter Medgyessy to resign within 30 days, Hungarian media reported on 10 September. The panel said that in his capacity as deputy prime minister between December 1987 and May 1990, Medgyessy had access to secret files, which, it argued, is incompatible with his present position. Medgyessy has refused to resign, saying that in the last communist government, he dealt only with economic issues and did not use secret files made available to him.




KARADZIC BACKERS LEAVE BANJA LUKA

An RFE/RL correspondent in Banja Luka said the situation is calm there following the failed coup attempt by backers of Radovan Karadzic against Republika Srpska President Biljana Plavsic (see "RFE/RL Newsline," 9 September 1997). Peacekeepers cleared the way for Momcilo Krajisnik, the Serbian member of the Bosnian joint presidency, and over 70 other Karadzic backers to leave their hotel on 9 September. The hotel was surrounded by Plavsic's police and angry crowds. Krajisnik's automobile convoy spent some hours at a nearby SFOR base before returning to eastern Bosnia.

U.S. WARNS BOSNIAN SERB HARD-LINERS

A State Department spokesman in Washington on 9 September praised SFOR's role in preventing the coup against Plavsic. The spokesman also said SFOR may retake a television transmitter that peacekeepers recently returned to the hard-liners unless Pale honors its obligations to broadcast materials supplied by the international community (see "RFE/RL Newsline," 9 September 1997). In related news, former U.S. envoy Richard Holbrooke said the U.S. will not tolerate any armed threats against its personnel in Bosnia. Some observers noted, however, that the international community has not always made good on such warnings in the past.

CROATIAN, SERBIAN NATIONALISTS TO BOYCOTT BOSNIAN VOTE

Meeting in Mostar on 9 September, leaders of the Croatian Democratic Community called on Croats across Bosnia-Herzegovina not to take part in the 13-14 September local elections (see "RFE/RL Newsline," 9 September 1997). Bosnian Croat leader Kresimir Zubak charged that international election officials favor Muslims over Croats in disputes about voter registration. He added that Muslims and Serbs alike try to push the Croats to the margins of Bosnian politics. In Pale, the hard-liners' Serbian Democratic Party also called for a boycott of the vote. In Sarajevo, however, international officials in charge of the elections warned that the international community will penalize those who call for a boycott. The officials urged all parties to take part in the vote. Observers noted that political parties throughout the former Yugoslavia often threaten to boycott elections but do not always do so.

VOJVODINA CROATS DEMAND NEW ELECTION RULES

Leaders of the Democratic League of Vojvodina Croats said in Subotica on 9 September that their party insists on guaranteed representation for Serbia's ethnic minorities in the new parliament slated to be elected on 21 September. The ethnic Croatian leaders charged that the current electoral districts have been set up to the detriment of ethnic minorities and that Croats are split up among six different districts. Vojvodina has been a mosaic of various Central European peoples since the Habsburg era. But Croats, Hungarians, Slovaks, and others have often accused the Serbian authorities over the past 10 years of discrimination against minorities.

SERBIAN POLICE ARREST NINE KOSOVO ALBANIANS

State-run Pristina Television said on 9 September that police arrested a "gang of nine bandits" who have allegedly carried out a series of "terrorist acts" in Prizren since August. The nine men, who have Albanian names, will go on trial soon. The television broadcast also showed what it said was a large quantity of weapons found in the arrested men's possession. Observers noted that over the past few years, the Serbian police have periodically arrested groups of what the police called armed Albanian terrorists. Ethnic Albanian human rights groups have charged in response that the men were framed and the weapons planted on them. Meanwhile in Pozarevac, Vojislav Seselj, the Radical Party's candidate for the Serbian presidency and wartime paramilitary leader, said he will deport to Albania all Kosovo Albanians who cannot prove they are Serbian and Yugoslav citizens, "Danas" reported.

MACEDONIAN PRESIDENT WANTS PEACEKEEPERS TO STAY

Kiro Gligorov said on 9 September that international peacekeepers must stay on to provide the necessary stability for Macedonia to overcome its poverty and social problems. He added that he hopes that Macedonia, which marked the sixth anniversary of its independence on 8 September, can eventually join both the EU and NATO. Also in Skopje, several hundred people attended memorial services for Mother Teresa, who was born as Agnes Gonxha Bojaxhiu in that city in 1910.

ALBANIAN PREMIER PLEDGES END TO RIGHTS ABUSES

Fatos Nano said in Vienna on 9 September that his government will set down legal guarantees for human rights to ensure that the authorities do not abuse their power. Nano will proceed to Brussels on 10 September and then to Luxembourg to promote links between Albania and European institutions. It is his first extended trip abroad since winning the 29 June elections. Meanwhile in Athens, police arrested three Albanians and two Greeks and confiscated from them drugs and weapons, including 130 pounds of hashish and 44 Kalashnikovs. Greek police said that there has been a constant influx of arms and drugs into Greece since law and order collapsed in Albania early this year.

ROMANIA PLANS CONSULATES IN SHANGHAI, HONG KONG

President Emil Constantinescu, who is currently on a state visit to China, said his country plans to open consulates soon in Shanghai and Hong Kong, RFE/RL's Romanian service reported on 9 September. Constantinescu made the announcement after talks with Chinese Prime Minister Li Peng. Beijing has approved a license allowing Bucharest to export 15,000 Romanian-built Dacia cars annually to Chinese retailers during the next three years. Constantinescu expressed regret about a recent decline in bilateral trade, while Li told him that Romanian products must be competitive in order to sell in a free market, according to Bucharest.

ROMANIAN BANK HOLDS TALKS WITH ABN AMRO

The vice president of the private Banca Comerciala "Ion Tiriac" said negotiations are under way to sell the institution to Bank of The Netherlands, Bloomberg Financial News reported on 9 September. Serban Bobulescu said he expects final negotiations to be concluded in October. The bank was founded by Ion Tiriac, a former Romanian tennis player and coach, who now owns a 31 percent stake. The European Bank for Reconstruction and Development holds another 20 percent. Tanno Massar, a spokesman for ABN Amro, refused to comment directly but said the Dutch bank is working to further develop its network and improve its position "either by autonomous growth or by acquisitions." ABN Amro has branches in the Czech Republic, Poland, Hungary, Russia, Kazakhstan, and Uzbekistan.

WORLD BANK TO LEND MOLDOVA $100 MILLION

The World Bank's International Development Association (IDA) has approved two loans totaling some $100 million to support the Moldovan government's economic reform program, RFE/RL's Washington bureau reported on 10 September. The credits are to be used to offer short-term support to basic public services and to provide foreign currency for imports critical to the country's economic stabilization and recovery. IDA officials said the loans are designed to help Moldova de-monopolize and privatize its energy sector, accelerate land reform and privatization, overhaul the pension system, and complete the privatization of state firms. The credits are to be disbursed in three tranches based on the progress of reforms.

IMF PRAISES BULGARIAN PROGRESS ON REFORM

The IMF's deputy chief has said that Bulgaria has made positive steps on its reform program since Prime Minister Ivan Kostov took office in April, RFE/RL's Washington bureau reported on 10 September. Stanley Fischer praised Sofia's determination to tackle difficult issues in the enterprise and banking sectors. He said the country's currency board, which is the core of an IMF-recommended reform program, has drastically improved economic stability even though inflation remained high during the summer. Fischer said recent inflation figures reflect essential adjustments made in utility prices and that underlying inflation remains very low. Bulgaria experienced hyperinflation at the beginning of 1997, and the lev was in free fall against the dollar before the currency board was established.

BELGIAN PRIME MINISTER IN SOFIA

Jean-Luc Dehaene arrived in Sofia on 9 September for two-day talks aimed at encouraging Bulgarian efforts to join NATO and the EU, RFE/RL reported. Bulgarian Prime Minister Ivan Kostov said several accords intended to strengthen relations between the two countries are currently being drafted. Dehaene said he expects economic cooperation between the two countries to deepen. He added that Bulgaria must meet NATO criteria by 1999 in order to begin entry negotiations. He said Brussels will offer "bilateral cooperation" to help Sofia in its membership bids.

PRIVATIZATION OF BULGARIAN METALS PLANT APPROVED

Alexander Sabotinov, the director of the Privatization Agency, said on 9 September that the government has approved the sale to a Belgian metals firm of a majority stake in a state-owned copper refining complex, RFE/RL reported on 9 September. Belgium's Union Miniere has agreed to pay some $55 million for a 56 percent stake in MDK Pirdop and agreed to invest another $300 million to revamp the facilities and to construct a new refinery. The sale would make Belgium the largest direct foreign investor in Bulgaria.




ARMENIA'S ECONOMIC RECOVERY SLOWS DOWN


by Gagik Bakhshian and Michael Wyzan

Armenia's main economic indicators during the first half of 1997 were less favorable than in the last few years. The growth of gross domestic product slowed to 1.4 percent from 5.8 percent in 1996, and industrial production fell by 2.9 percent, after increasing by 1.2 percent in 1996. Official unemployment rose to 10.6 percent in June from 10.1 percent in December 1996.

External developments were also worrisome in the period from January to June. Exports decreased by 21 percent, while imports rose by 16 percent, yielding a trade deficit (net of foreign assistance) of $326 million, compared with $571 million in 1996 as a whole.

Nonetheless, the economic situation in the first half of 1997 had its positive sides, including low inflation. Consumer prices were up by only 7.2 percent compared with the same period last year. Moreover, performance may improve in the second half of 1997, as was the case last year, when GDP growth was 3.2 percent for the first five months and 5.8 percent for the year. In addition, in 1996 inflation turned out to be lower than projected during the year.

Armenia enjoyed the best economic macroeconomic performance in the CIS from 1994 to 1996. GDP grew by 5.4 percent in 1994, 6.9 percent in 1995, and 5.8 percent last year. The figures for 1994 and 1995 were the highest in the CIS those years. By 1996, consumer-price inflation had fallen to 5.7 percent on a December-to-December basis, the lowest of any former Soviet republic since the break-up of the USSR.

The biggest macroeconomic problems are sizable external imbalances, which result from very weak export performance, and large budget deficits. Although both types of deficit have been largely financed by international assistance, such a situation cannot persist indefinitely.

From 1991 to 1993, GDP fell by 63 percent, while four-digit annual inflation continued through 1994. That disastrous performance was caused by such factors as the 1988 earthquake, the shutting down of the Medzamor nuclear power plant in 1989 (reopened in 1995), the disruption of trade with the rest of the former Soviet Union, blockades by Turkey and Azerbaijan, and civil unrest in Georgia, which cut off Armenia's only remaining outlet to the sea.

In early 1995, the economy rebounded almost immediately after IMF awarded the country its first, $23.6 million loan in December 1994. Inflation fell from almost 61 percent in that month to 3.9 percent in January, while GDP growth went from -14.8 percent in 1993 to 5.4 percent in 1994.

In February 1996, the IMF granted Armenia a three-year, $148 million loan. Although the fund has generally praised Armenian economic policy, it has expressed concern this year over poor performance on tax collections and a growing debt burden. Such concern has resulted in a delay in its release of the first tranche of the loan from the first to the second quarter.

There are grounds for uneasiness about the future of Armenia's economy beyond slightly worse statistics and a more standoffish IMF this year. It is unclear whether Armenia will be able to generate the sustained, rapid economic growth necessary to raise its standard of living. As in most transition countries, foreign investment--especially in new plant and equipment for production of goods for export--is vital for achieving such growth. Several factors make it difficult for Armenia to attract such investment, however.

The country is landlocked, isolated from world markets, and has no direct economic contact with two neighbors, Turkey and Azerbaijan. It is also rather poor in natural resources, although they are good prospects for the exploitation of copper and molybdenum deposits (as well as gold in territory disputed with Azerbaijan). Most important, the threat of a renewed conflict over the unrecognized Nagorno-Karabakh Republic hangs over its economic prospects.

It is likely that the Armenian Diaspora, by itself, could provide sufficient foreign investment to improve the country's macroeconomic performance. But so far, cumulative foreign investment is in the range of only $12-24 million. Another roadblock to growth are banks unable to mobilize domestic savings or stimulate investment.

Better economic prospects might result from improved relations with Russia. The two countries signed a treaty on "friendship, cooperation, and mutual assistance" on 29 August. They also signed a second accord creating a joint venture to re-export Russian gas to Turkey. But Armenian Energy Minister Gagik Martirossian's prediction that revenues from the transit and export of gas will enable Armenia to repay its foreign debt within two years and pay off its external finance requirements is perhaps overly optimistic.

Gagik Bakhshian is deputy director of the Center for Economic Policy Research and Analysis in Yerevan. Michael Wyzan is a research scholar at the International Institute for Applied Systems Analysis in Laxenburg, Austria.


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