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Newsline - June 29, 1998




YELTSIN SAYS THERE IS NO CRISIS

President Boris Yeltsin on 29 June cautioned against referring to Russia's current economic situation as a "crisis." According to Interfax, Yeltsin said before a meeting with Prime Minster Sergei Kirienko that "we have no crisis and that's why I do not describe the [government] program as anti-crisis, but rather refer to it as a stabilization program." Opening a cabinet session on 23 June, Yeltsin had argued that "the economic crisis has become so acute that there are social and political dangers." Explaining the president's decision to postpone a planned trip to Kazakhstan in July, spokesman Sergei Yastrzhembskii on 26 June told journalists that Yeltsin believes "four days is just too much time to spend elsewhere during a crisis," Interfax reported. Meanwhile, the Russian stock and bond markets fell further in the morning of 29 June after posting declines three days earlier. LB

DUMA BUDGET COMMITTEE CONSIDERS TAX LAWS

The State Duma Budget Committee on 29 June began considering a package of draft laws on taxation that are part of the government's anti-crisis program, RFE/RL's Moscow bureau reported. Addressing the committee he chaired before joining the government last November, Finance Minister Mikhail Zadornov called on deputies to "immediately pass" the government's proposals, according to ITAR-TASS. The committee will make its recommendations before the Duma considers the package during a 1 July plenary session. Budget Committee Chairman Aleksandr Zhukov of the Russian Regions faction has already backed the government's program. He announced on 27 June that Russia must raise taxes now to avoid a sharp devaluation of the ruble. Deputy Prime Minister Boris Nemtsov on 28 June estimated that the government program, if approved in its entirety, would bring in an additional 102 billion rubles ($16.5 billion) in federal budget revenues. LB

FINANCE MINISTER DENIES NEW SALES TAX WILL RAISE PRICES

Finance Minister Zadornov has denied that the planned introduction of a sales tax will increase prices for consumers. In an interview with Russian Public Television on 27 June, Zadornov argued that prices will remain "balanced" because the government is seeking to cut several other taxes, such as the profit tax, income tax, and employers' contributions to non-budgetary funds like the Pension Fund, ITAR-TASS reported. The government is seeking to raise taxes on consumption because they are easier to collect than taxes on income or profits. Another proposal submitted for consideration by the Duma would raise value-added tax to 20 percent on most staples currently taxed at a discounted rate. LB

IMF STUDYING GOVERNMENT PLAN

Martin Gilman, the IMF's representative in Moscow, told Interfax on 27 June that a team of experts from the fund has begun studying the government's anti-crisis plan. IMF and Russian officials are negotiating a possible $10 billion to $15 billion loan to stabilize the financial markets, and the talks are expected to continue for weeks. Gilman on 28 June praised the Russian government's efforts to avoid the devaluation of the ruble, saying such a move would exacerbate Russia's budgetary problems, Interfax reported. Meanwhile, Prime Minister Kirienko told Russian Public Television on 26 June that the government will use the latest $670 million tranche from a four-year IMF loan to help pay debts to enterprises in the defense industry. The fund approved the release of that tranche on 25 June. LB

CENTRAL BANK HIKES REFINANCING RATE AGAIN

At the end of another day of declines on Russian stock and bond markets, the Central Bank on 26 June announced plans to raise its annual refinancing and Lombard rates from 60 percent to 80 percent as of 29 June, Russian news agencies reported. The bank reduced those rates from 150 percent to 60 percent on 5 June, saying the worst of the crisis had passed. But the ruble remains under severe pressure. The Central Bank announced on 25 June that Russia's gold and hard-currency reserves dropped from $15.7 billion to $14.7 billion during the week of 12-19 June. Deputy Finance Minister Oleg Vyugin announced on 26 June that proceeds from the latest sale of Eurobonds have brought the gold and hard-currency reserves back up above the $16 billion level. LB

BEREZOVSKII CALLS FOR 'CONSOLIDATION' TO SOLVE CRISIS

CIS Executive Secretary Boris Berezovskii says Russia can only solve its current crisis "through the consolidation of power," which he described as "consolidation of the broadest forces, including business." In a 28 June interview with the private network TV-6, which he partly finances, Berezovskii argued that the government "takes quite logical decisions but is not in a position to carry them out," Reuters reported. He argued that efforts to stabilize the political situation are "the best investment" for Russia. Berezovskii, one of Russia's most influential businessmen, is an advocate of forming a council of business leaders to advise the government (see "RFE/RL Newsline," 19 and 22 June 1998). LB

NEMTSOV SAYS BUSINESSMEN WANT CONTROL OVER CABINET LINEUP

Deputy Prime Minister Nemtsov told fully state-owned Russian Television on 28 June that business leaders have not given the government "a single constructive proposal on the package of anti-crisis measures," Reuters reported. He argued that the main goal of business elites is to not to influence policy but to secure the dismissal of the government. He added that it would be a "catastrophe for Russia" if businessmen were given control over cabinet appointments. After Yeltsin fired Viktor Chernomyrdin's government in March, several influential businessmen sought to have Nemtsov excluded from the new cabinet. LB

GAZPROM SHAREHOLDERS' MEETING IS VICTORY FOR CURRENT MANAGEMENT

Rem Vyakhirev, the chief executive of the gas monopoly Gazprom, has emerged strengthened from the company's annual shareholders' meeting on 26 June. Some Russian media speculated that the government would use the meeting to try to unseat Vyakhirev. However, Deputy Prime Minister Nemtsov told shareholders that the government has no plans to change the current management of the 40 percent state-owned company, Russian news agencies reported. Nemtsov also denied that the government will agree to break up the gas monopoly--a demand that some Russian media have attributed to the IMF. In addition, Nemtsov said the government has decided to reduce the number of enterprises to which Gazprom cannot cut off gas supplies. The shareholders chose State Property Minister Farit Gazizullin to replace Aleksandr Kazakov, former deputy head of the presidential administration, as chairman of Gazprom's board of directors. LB

ANOTHER ARRESTED IN STATISTICS CORRUPTION SCANDAL

The Prosecutor-General's Office has arrested Vyacheslav Baranovskii, the head of the State Statistics Committee publishing center, on embezzlement charges, "Kommersant-Daily" reported on 27 June. He is the fourth high-ranking statistic official to be arrested this month (see "RFE/RL Newsline," 10 and 11 June). Investigators say Baranovskii's department sold demographic and economic information to companies and individuals and pocketed profits from materials printed in excess of official amounts. According to the Federal Security Service, approximately 20 statistical workers are implicated in the scandal, which has cost the government an estimated 1 billion rubles ($160 million). Some Russian media reported earlier this month that former State Statistics Committee Director Yurii Yurkov confessed to the charges against him, but Yurkov's attorney later denied those reports. BT

SELEZNEV SAYS DUMA WON'T GIVE UP KURILS

State Duma chairman Gennadii Seleznev told a conference attended by Far East and Siberian legislators on 26 June in Khabarovsk that Russia has "no land to spare, the borders will not change," ITAR-TASS and Interfax reported. Seleznev singled out the islands in the Amur River and the four Kuril Islands, claimed by China and Japan, respectively. He also warned about the illegal immigration of Chinese and Korean citizens and called on legislators to take action against "all attempts to capture priceless Russian territory and resources." With regard to speculation that Russia may "transfer the Kuril Islands to the jurisdiction of Japan," Seleznev said there is "no foundation" to that speculation, adding that the Duma is agreed that this will not happen. BP

CAN 'MIR' LAST TILL YEAR'S END?

ITAR-TASS and Interfax on 26 and 27 June reported that with approximately six months left before the "Mir" space station is shut down, there may not be sufficient funds to keep it running for that period. The managers of "leading aerospace industries" sent a letter to Prime Minister Kirienko on 26 June warning that if the station's financial situation does not improve, "it will be necessary to liquidate" the station. It is also impossible to leave "Mir unmanned as it may then make an uncontrolled descent to Earth. Interfax quotes an unnamed source from the Energiya aerospace corporation as saying that station designers "are prepared to announce they claim no responsibility for the effects of an unsanctioned descent." The station's next crew is is scheduled to arrive on 3 August. BP

DUMA'S AMNESTY FOR DESERTERS TAKES EFFECT

An amnesty for army deserters adopted by the Duma on 19 June went into effect on 24 June, "Kommersant-Daily" reported. The resolution applies to deserters and draft evaders who left military units before 25 June 1998 and who turn themselves in by 24 December 1998. Lyubov Kuznetsova of the Committee of Soldiers' Mothers criticized the amnesty, arguing that investigative organs might interpret the measure as applying only to veterans of the Chechen war. The amnesty replaces a partial amnesty implemented by the Military Prosecutor's Office in cooperation with the Committee of Soldiers' Mothers (see "RFE/RL Newsline," 27 March 1998). Since March, approximately 6,000 deserters have returned and now serve in different units; of those, 2,000 have been cleared of criminal charges owing to "difficult conditions" faced in service. An estimated 10,000 deserters remain at large, and many are forced to commit crimes to survive. BT

MAYOR OF OIL-RICH TOWN GUNNED DOWN

Vladimir Petukhov, the mayor of Nefteyugansk (Tyumen Oblast), was shot dead as he was walking to work on 26 June. The local branch of the Federal Security Service arrested two men the same day but gave no details about the suspects. Several Russian newspapers reported on 27 June that Petukhov had long clashed with the management of the Yukos oil company, whose subsidiary, Yuganskneftegaz, is the major employer in Nefteyugansk. The press service of the Rosprom-Yukos group has suggested that Petukhov was killed in connection with embezzlement from the local budget, "Kommersant-Daily" reported. Police are also investigating whether the killing is linked to an alleged conflict with Chechen residents over control of a retail market. Speculation in the ITAR-TASS news agency focused on the last scenario. ITAR-TASS deputy director Leonid Nevzlin worked for Rosprom-Yukos before joining the news agency last September. LB

CONSTITUTIONAL COURT CHAIRMAN AMBIVALENT ON CHECHNYA

Marat Baglai told journalists on 26 June that the Constitutional Court is unlikely to review the constitutionality of the state of emergency imposed in Chechnya even if requested to do so, Interfax reported. Baglai admitted that the Russian Constitution empowers only the president to declare a state of emergency. He said that the court "proceeds on the assumption that Chechnya is a subject of the federation," but he added that "its status has certain peculiarities that are not yet clear." Chechen President Aslan Maskhadov declared a state of emergency on 23 June, arguing that tough restrictions are imperative in order to bring crime under control. LF

LEBED, STEPASHIN COMMENT ON NORTH CAUCASUS

Krasnoyarsk governor Aleksandr Lebed told Interfax on 28 June that it is the shared responsibility of the Russian president and regional governors to resolve conflicts in the North Caucasus. He accused the federal authorities of ignoring 30 potential conflict areas in the North Caucasus, adding that if those conflicts erupt, they could destroy the Russian economy and spark civil war. Speaking in St. Petersburg on 27 June, Interior Minister Sergei Stepashin said that his ministry does not plan to send additional forces to the North Caucasus but aims to coordinate the activities of its troops in the region more closely with the Defense Ministry and Federal Security Service. LF

CONFLICTING REPORTS ABOUT KIDNAPPED RUSSIAN ENVOY

In an interview published in "Noviye izvestiya" on 26 June, acting Chechen Prime Minister Shamil Basaev said that the abductors of Russian presidential envoy to Chechnya Valentin Vlasov have demanded $5-6 million for his release. But former Russian Security Council Secretary Ivan Rybkin told Interfax the next day that he believes Vlasov may be set free without any ransom being paid. Vlasov was kidnapped near the border between Chechnya and Ingushetia on 1 May. His whereabouts are unknown. LF

PROTESTS IN NORTH OSSETIA

Between several hundred and several thousand people participated in demonstrations in the North Ossetian capital, Vladikavkaz, and two nearby villages over the weekend, Interfax and Caucasus Press reported. Participants called on the North Ossetian leadership to prevent further reprisals against Ossetians by Ingush and protested the murder on 26 June in the village of Sunja of two Ossetians. The murderers are believed to be Ingush. Participants at the 28 June protest in Vladikavkaz also called for the creation of an Ossetian national guard to protect the local population. LF




GEORGIAN PARLIAMENT SPEAKER WARNS OF 'CATASTROPHE'

Speaking on the last day of the spring parliamentary session, Zurab Zhvania warned that Georgia is headed for "catastrophe" and that he may resign if the country's leadership does not substantively change its present policies, RFE/RL's Georgian Service reported on 27 June. Zhvania did not specify the nature of the changes he considers necessary. Opposition parties have intensified their criticism of Georgian President Eduard Shevardnadze following the fighting in Abkhazia in late May, which led to the exodus of some 35,000 ethnic Georgians from the region. LF

ARMENIAN FOREIGN MINISTER WANTS KARABAKH TALKS TO RESUME

Vartan Oskanian told journalists on 26 June that adverse international reaction to his recent remarks on Karabakh (see "RFE/RL Newsline," 19 and 24 June 1998) is the result of pressure by Azerbaijan on the international community, Noyan Tapan and RFE/RL's Yerevan bureau reported. Oskanian pointed out that he had proposed direct talks between Yerevan, Stepanakert, and Baku but that Azerbaijan ignored that offer. Oskanian added that Armenia sets no preconditions for a resumption of talks and that Azerbaijan should refrain from doing so in order to break the present deadlock in negotiations. A French Foreign Ministry spokesman told the Armenian ambassador in Paris on 25 June that France "regards negatively" Oskanian's statement on the possibility of reunification between Armenia and the unrecognized Nagorno-Karabakh Republic. LF

CENTRAL ASIAN PREMIERS SIGN ACCORDS IN BISHKEK

At an energy summit in Bishkek on 26 June, the prime ministers of Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan signed an agreement on further economic integration between their countries, RFE/RL correspondents reported. They also signed accords on an inter-governmental commission dealing with economic integration, on joint scientific-technical programs, on guaranteeing sanitary conditions in the region, and on providing medical services to one another's citizens. Documents on forming a hydro-power consortium and integrating the four countries' energy systems will be signed at the next meeting in Astana, Kazakhstan, at the end of September. BP

TAJIKISTAN CELEBRATES ONE YEAR OF "OFFICIAL PEACE"

Tajikistan celebrated the "Day of National Unity" on 27 June, one year after the signing of the Tajik Peace Accord in Moscow, ITAR-TASS reported. In a speech on nationwide radio the previous day, Tajik President Imomali Rakhmonov called the accord " an important and valuable document which has entered the history of the Tajik people." The same day, 100 members of the United Tajik Opposition (UTO) based in the Kofarnikhon and Romit Gorge areas were sworn into the Tajik army. Meanwhile, in an interview in the 26 June edition of "Krasnaya Zvezda," UTO leader with Said Abdullo Nuri praised the peace process in Tajikistan and said Tajikistan will maintain good relations with Russia. He described the presence of Russian border guards in the country as "a necessity." BP

NAZARBAYEV TO GO TO MOSCOW

The Russian presidential press service on 27 June announced that Kazakh President Nursultan Nazarbayev will be in Moscow on 6-7 July, ITAR-TASS reported. Yeltsin was scheduled to visit Kazakhstan beginning 30 June for meetings with the heads of the CIS Customs Union and to review the five- country CIS-China border treaty with the leaders of the signatory countries. Russian Foreign Minister Yevgenii Primakov will go to Kazakhstan instead of Yeltsin. Many of the documents Yeltsin was to have signed in Almaty on Russian-Kazakh relations will be brought to Moscow for signing there. According to ITAR-TASS, they include a treaty of "eternal friendship and alliance for the 21st century" as well as an agreement on delimitation of the northern Caspian Sea bed. BP

WORLD BANK GIVES $28 MILLION CREDIT TO UZBEKISTAN

The World Bank has extended a $28 million loan to Uzbekistan to support the privatization process, ITAR-TASS reported on 26 June. The loan will be used to provide consulting services to increase profits and production efficiency, help privatize large government enterprises, and develop market capital. The total cost of the project is put at $47.7 million. The Uzbek government will pay the difference of $19.7 million. BP




BELARUSIAN DIPLOMATIC ROW CONTINUES

The Russian Foreign Ministry on 26 June said that actions of the Belarusian authorities against diplomats in Minsk were "undiplomatic," but its spokesman indicated that Moscow still hoped for "a balanced approach" in resolving the dispute, ITAR-TASS reported. Meanwhile, four more countries have recalled their ambassadors from the Belarusian capital, bringing the total who have left in the dispute over control of diplomatic property to 11. Belarusian President Alyaksandr Lukashenka, however, remained unrepentant. Appearing at the Crans Montana meeting in Switzerland, he said that the ambassadors could return once they got permission from Minsk. He also commented that "everybody is accusing Belarus of every possible sin. But in Belarus, we are civilized. No one is shooting at each other. We have a lot of foreign investment, we have McDonald's and Coca Cola too." PG

NATO MAY OPEN MILITARY MISSION IN UKRAINE

A NATO senior official said in Kyiv on 26 June that the Western alliance may open a liaison mission in the Ukrainian capital later this year, Interfax reported. Klaus Kleiber, an aide to NATO Secretary-General Javier Solana, said his boss will discuss that possibility during a 8-9 July visit to Ukraine. On 26-27 June in Crimea, Kleiber stressed the importance of developing good relations between Ukraine and that region, ITAR-TASS reported on 28 June. Those ties may improve following a meeting in Kyiv on 26 June at which approximately half of the 26 countries represented pledged some $5 million to help resettle the Crimean Tatars, Interfax reported. Kyiv has sought $13.8 million to help this group, which was deported from the region by Stalin in 1944. PG

UKRAINIAN MINERS DEMONSTRATE; KYIV DISMISSES OFFICIALS

Some 250 striking miners blocked streets in Kyiv on 26 June to protest wage arrears, Ukrainian and Western agencies reported. The leaders of the action said it was "a gesture of despair." In response to the mounting wave of job actions in the mining sector, President Leonid Kuchma dismissed four deputy coal industry ministers and named former union leader Viktor Derzhak as head of the state coal concern, Interfax reported. PG

YELTSIN'S VISIT TO UKRAINE POSTPONED

Boris Yeltsin's press spokesman Sergei Yastrzhembskii said on 26 June that the Russian president will not meet with his Ukrainian counterpart, Leonid Kuchma, in Crimea in July, Interfax reported. The informal meeting had originally been scheduled for June. It was postponed until July during the recent Russian economic crisis. But Yastrzhembskii did not give a reason for this delay or announce a new date. On 25 June, the Kremlin announced that Yeltsin will delay a planned trip to Kazakhstan in July to an unspecified date in September in order not to be away from Russia for several days during the continuing economic difficulties. "Nezavisimaya gazeta" argued on 27 June that the postponement of Yeltsin's visits to Ukraine and Kazakhstan--where he was to have met with the leaders of that country, China, Kyrgyzstan, and Tajikistan--"will further weaken Russia's influence in the CIS." PG/LB

RUSSIAN CITIZENS' LEAGUE REGISTERED IN ESTONIA

The Russian Citizens' League has become the first organization of its kind to be registered in Estonia, BNS reported on 25 June. The league was set up in early March after leading members had split from the unofficial Tallinn Union of Russian Citizens. The chairman of the new organization, Vladimir Lebedev, told BNS that league is "apolitical as required under the Estonian law, and we plan to act only in a legal way." He added that "there are many very important fields where we can be active, such as the social, economic, and humanitarian fields." JC

LATVIAN DEPUTIES DEMAND DELAY IN PUBLISHING AMENDED CITIZENSHIP LAW

Thirty-eight parliamentary deputies have submitted to President Guntis Ulmanis a document demanding that publication of the recently passed amendments to the citizenship law be delayed for two months, BNS reported on 26 June. During that period, the deputies will seek to collect the signatures of least one-tenth of eligible voters (some 95,500 people) in support of a popular referendum on the amendments. If the campaign to collect the required amount of signatures fails, the law will be published. JC

LITHUANIAN PARLIAMENT PASSES LUSTRATION LAW

Lawmakers on 25 June passed a law banning former KGB agents from holding positions in government and state bodies for 10 years following the passage of the new legislation, ELTA reported. The law, which was initiated by parliamentary speaker Vytautas Landbergis, also recommends that such persons not be allowed to work as lawyers or in key industries, private security companies, or the communications sector. The law does not apply to those who left the KGB before 12 March 1990. The only previous attempt to pass a lustration law failed in late 1991 when the author of the bill was himself identified by the press as a former KGB agent. JC

LILEIKIS TRIAL TO BEGIN IN SEPTEMBER

A Vilnius judge has set 1 September as the start of the trial of suspected war criminal Aleksandras Lileikis, 91, BNS and Reuters reported on 26 June. Lileikis, who is currently bed-ridden owing to ill health, is accused of having sent scores of Jews to death camps when he was head of the Vilnius security police during World War II. He was charged earlier this year, but his trial was postponed to allow testimony to be gathered from two more witnesses, one of whom says Lileikis saved her life. The Simon Wiesenthal Center has strongly criticized the delay in starting the trial, saying it is "outrageous...[and] does not reflect well on the will of Lithuania to prosecute its countrymen who collaborated with the Nazis." JC

SOLIDARITY OPPOSES NEW LEFTIST TV HEAD IN POLAND

Members of the Solidarity-led governing coalition have said they will seek to overturn a decision by the state television board to name a former Communist as its head, PAP reported on 26 June. The board, whose members were selected by the previous left-of-center government, chose ex-Communist Robert Kwiatkowski shortly before their terms expired. PG

SOCIALIST-LED COALITION BECOMES UNLIKELY IN CZECH REPUBLIC

Freedom Union leader Jan Ruml on 27 June said his party is ready to form a coalition with Vaclav Klaus's Civic Democratic Party (ODS) and with the Christian Democratic Party (KDU-CSL), provided that no formation has a majority in the government, CTK reported. But Ruml's deputy, Vladimir Mlynar, said on Nova TV on 28 June that he "would not raise his hand" for a cabinet that "would be a replica of the previous government of Vaclav Klaus." Mlynar added that he hopes the "political style" of the previous coalition will change, so as to make it possible for the union to join it. Social Democratic Party (CSSD) leader Milos Zeman one day earlier called on other formations to "tolerate" a minority government formed by the CSSD and the KDU-CSL. MS

HAVEL ON COALITION PROSPECTS

President Vaclav Havel on 27 June said he is "no great fan" of a "grand coalition" of the CSSD and the ODS and would rather endorse a center-right coalition, provided it "changed its methods of ruling." Havel said he does not consider a coalition relying on Communist support as "the best solution" but cannot rule it out either. ODS deputy chairman Miroslav Macek on 28 June said he believes it "would suit President Havel very much" if both Zeman and Klaus failed to form a coalition. Macek said that in such a case Havel would be able to "get fully involved in the process" and appoint a government made up of people close to him, CTK reported. MS

SLOVAK-HUNGARIAN TENSIONS OVER BILATERAL TREATY

Foreign Ministry spokesman Milan Tokar on 26 June told TASR that Hungarian worries about Slovak non- fulfillment of obligations assumed in the bilateral treaty between the two countries are "misplaced." He was reacting to a statement made one day earlier by Hungarian Foreign Minister-designate Janos Martonyi, who said Hungary must "make clear to Slovakia that it must fulfill its international obligations." Tokar said Martonyi would be "better counseled" to ensure that Hungary fulfills its international obligations, pointing to the verdict of the International Court of Justice in the Hague on the Gabcikovo-Nagymaros dispute and Hungary's failure to pass legislation allowing minority representatives to have seats in the parliament. MS




HOLBROOKE SAYS WAR IS NEAR...

U.S. envoy Richard Holbrooke said on 27 June that the situation in Kosova is "only a few steps away from a general war," an RFE/RL correspondent in Crans-Montana reported. Holbrooke, speaking at the Crans-Montana forum in Switzerland, said an observer mission made up of diplomats would be arriving in Kosova "as quickly as possible." Holbrooke said the U.S. lays the blame for the "tragedy" in Kosova on Belgrade and said a change in Kosova's status is essential to resolving the conflict. PB

...AS YUGOSLAV PREMIER WALKS OUT OF CONFERENCE

Momir Bulatovic left the Crans-Montana economic forum on 28 June after a session on security in Europe was abruptly canceled, Reuters reported. The session was to include Holbrooke and Albanian Prime Minister Fatos Nano. Nano refused to attend the session, saying it was pointless "because they continue to massacre the civilians." A Yugoslav Foreign Ministry official called the incident "scandalous." PB

U.S. MEETS WITH REBEL KOSOVAR LEADERS

Holbrooke on 28 June said that Washington has held its first official talks with leaders of the Kosova Liberation Army (UCK), Reuters reported. Holbrooke said that Robert Gelbard met with UCK officials on 26 June at an undisclosed location. He added that ethnic Albanian leader Ibrahim Rugova was told of the meeting and supported it. Holbrooke said talks with UCK leaders will continue if those officials prove they have control over their own military forces. In Belgrade, Russian Deputy Foreign Minister Nikolai Afanasievskii said after meeting with Yugoslav President Slobodan Milosevic that the Yugoslav president has kept "all of the promises" he had made to Russian President Boris Yeltsin in Moscow last week. PB

ALBANIAN PREMIER CLARIFIES POSITION ON KOSOVA

Nano said in Crans Montana on 26 June that he does not support independence for Serbia's Kosova province but added that it should be given the status of a republic within Yugoslavia, an RFE/RL correspondent reported. Nano called on Yugoslav President Slobodan Milosevic to withdraw his forces from Kosova and on the Kosova Liberation Army to halt its armed uprising. Nano said that Kosova shadow state President Ibrahim Rugova "is a figure without real authority" and that "the UCK should understand that behaving like civilians is the best solution." He called for NATO air strikes against Serbian military targets but said that a UN mandate would be a precondition for such a step. FS

ITALY, GREECE, GERMANY, ANNAN WANT UN MANDATE FOR NATO ACTION

Italian and Greek Prime Ministers Romano Prodi and Kostas Simitis, meeting on Corfu on 28 June, said that they want a UN mandate as a precondition for NATO action in the federal Yugoslavia. UN Secretary- General Kofi Annan and German Foreign Minister Klaus Kinkel, who met in London on 28 June, expressed the same view. Annan said military action without the mandate would constitute a "dangerous precedent." Meanwhile, the international community's high representative to Bosnia- Herzegovina, Carlos Westendorp, has rejected a proposal by Bosnian co-Premier Haris Silajdzic to allow NATO to use bases there for air strikes against Yugoslavia, RFE/RL's South Slavic Service reported on 26 June. FS

FIGHTING CONTINUES IN KOSOVA

Heavy fighting was reported between ethnic Albanians and Serbian police around the village of Pantina, in central Kosova, dpa reported on 27 June. Belgrade Radio reported that UCK forces captured the town the previous day. No casualty figures are available. Armed ethnic Albanian forces are also reported to be maintaining a cordon around the predominantly Serbian village of Kijeva, between Prishtina and Peja. Serbian forces, in turn, have encircled the Albanian forces and are attacking them with Yugoslav army helicopters, RFE/RL's South Slavic Service reported. The village has about 200 Serbian inhabitants. There were also numerous reports of clashes along the Kosova border with Albania and along roads leading to Prishtina. PB/FS

UNHCR ALLOWED INTO KOSOVA

The UN High Commissioner for Refugees, Sadako Ogata, said that UNHCR and UN World Food Program aid teams were allowed into Kosova for the first time on 25 June, Reuters reported. Ogata said they were able to bring food to some 600 refugees in the village of Junik. She said the refugees, mainly women and children, are in "pretty bad physical shape" and are living in makeshift shelters. PB

MACEDONIA PROTESTS YUGOSLAV AIR INCURSIONS

The Macedonian Defense Ministry on 26 June sent a letter of protest to the Yugoslav embassy in Skopje over violations of its airspace by Yugoslav fighter planes, AFP reported. A Defense Ministry spokesman said two Yugoslav MiG-21s flew over Macedonia on 19 and 23 June. He called the flights intentional and provocative. PB

WAR CRIMES SUSPECT FOUND DEAD AT HAGUE

Slavko Dokmanovic, a Serb who was awaiting the verdict in his war crimes trial at The Hague, was found hanged in his jail cell on 29 June, AP reported. Dokmanovic was charged with playing a key role in the massacre of some 200 Croats in Vukovar in 1991. PB

BOSNIAN CROATS FOUND NEW PARTY

Nearly 200 representatives from all of Bosnia-Herzegovina's cantons have officially formed the New Croatian Initiative, Hina reported on 27 June. Most of the party founders are former members of the Croatian Democratic Community in Bosnia- Herzegovina (HDZ-BH). Kresimir Zubak, the Croatian member of the Bosnian presidency and the leader of the New Croatian Initiative, said the party has a "Christian Democratic orientation." Zubak complained that the HDZ-BH was favoring the interests of Croats from Herzegovina over those of Croats from other parts of Bosnia who want to live peacefully with Muslims and Serbs. He added that the Herzegovinian Croats of the HDZ-BH still support separation, RFE/RL's South Slavic Service reported. FS

BALKAN DEFENSE MINISTERS AGREE TO CREATE MULTINATIONAL FORCE

The Defense Ministers of Italy, Turkey, Greece, Bulgaria, Romania, Macedonia and Albania agreed on 26 June in Athens to create a multinational force. They scheduled a meeting for the fall in Skopje to draw up a document establishing such a force, RFE/RL's South Slavic Service reported. FS

CROATIAN PARLIAMENT APPROVES GOVERNMENT PLAN FOR REFUGEE RETURN

The Croatian government on 26 June approved a government plan providing for the return of Serbian refugees and other displaced persons. Zagreb has been under pressure from the international community to allow the return of Serbs. The plan was crafted with the help of Western envoys. Foreign Minister Mate Granic said legislators helped the government make "a great step toward the EU and Western integration," RFE/RL's South Slavic Service reported. The law provides for the unconditional return of those displaced by Croatia's battles against rebel Serbs from 1991-1995. FS

ROMANIA'S HUNGARIAN ALLIANCE TO REMAIN IN RULING COALITION

The Council of Representatives of the Hungarian Democratic Federation of Romania (UDMR), meeting in Cluj on 27-28 June, voted against a proposal to leave the ruling coalition now. At the same time, the council set a timetable for the government and the parliament to approve legislation meeting the demands of the UDMR, saying the executive must take "concrete measures" to set up a Hungarian-language state university and the parliament must approve the regulation amending the education law by 31 October, an RFE/RL correspondent in Cluj reported. MS

TOKES REJECTS ALLEGATION OF COLLABORATION WITH SECURITATE

At the same meeting, the council decided to set up a special commission to examine how to tackle allegations that UDMR leaders collaborated with the Securitate. Responding to the publication last week in "Adevarul" alleging he was a collaborator, honorary chairman Laszlo Tokes did not deny the authenticity of a document he signed pledging to inform if "national security" were at stake. He stressed, however, that he was forced to sign that document and never acted as an informer. He added that the latest public revelations were orchestrated by Romanian Intelligence Service employees who were seeking to retain control over the files and trying to discredit genuine former dissidents. On 26 June, the military branch of the Prosecutor-General's Office announced it has opened an investigation against a SRI employee who leaked to the press the document that attested to former Health Minister Francis Baranyi's links with the Securitate. MS

MOLDOVA TO PRIVATIZE ENERGY SECTOR

The parliament on 25 June approved a "Concept for Privatizing Enterprises in the Energy Sector," RFE/RL's Chisinau Bureau reported. The document stipulates that the majority share in three power plants and five energy distribution companies is to be offered to foreign investors in an international tender. Deputy Prime Minister Ion Sturdza said the privatized companies' debts will be covered by the state budget. He said the energy sector is in need of urgent investments totaling some $700 million and that the state budget "simply cannot cover that huge amount." MS




OIL PRICE DECLINE FAILS TO DAMPEN AZERBAIJAN'S RECOVERY


by Michael Wyzan

The Azerbaijani economy was one of the best performers in the CIS in 1997 and continues to hold that position this year. The prices that Azerbaijan receives for its oil have been declining steadily, falling from $20.10 barrel in the first quarter of 1997 to $13.40 a year later. So far, however, this decline has not had a significant adverse effect on the economy.

The first place to look for the effects of the price decline is in the state budget. Indeed, during the first three months of this year, oil revenues fell by 8.3 percent compared with the same period last year, accounting for 43 percent of total revenues (52 percent in 1997). But total tax revenues were more or less unchanged, as the authorities were able to improve tax collection.

Unusually low oil prices are nonetheless expected to persist at least until the end of this year and the government is discussing with the IMF ways to cut expenditures, especially social ones. Local economists point out that it would be better to extract more taxes from illegal importers--who often have close relations with state officials--than to cut social benefits.

Foreign direct investment (FDI) topped $1 billion in 1997, and the 10 biggest oil contracts, which typically run for 30 years, entail investment of $33-34 billion. But despite its oil wealth and the large inflow of foreign capital, Azerbaijan remains impoverished. The average monthly wage in the fourth quarter of last year was only $36, and households currently spend about 80 percent of their incomes on food, beverages, and tobacco, compared with 61 percent when the country gained independence.

Another reason why the fall in oil prices has had modest effects on the country is that annual oil production is only about 10 million metric tons, compared with 21 million tons in the mid-1960s and to an expected 50-60 million tons by 2005.

In 1997, oil export revenues were only $480 million, less than half of FDI that year. Accordingly, for the next few years, low oil prices will have a big impact on the economy only if they slow down or discourage FDI, either by making oil companies more pessimistic or because they simply do not have the funds to invest. So far, there are no signs of a slackening of investment activity. As recently as 2 June, Azerbaijan signed three new production-sharing agreements worth $4 billion with major oil companies.

Last year's strong economic performance seems to be continuing this year. In 1997, Azerbaijan's GDP grew by 5.8 percent, faster than all CIS member states, except Belarus, Georgia, and Kyrgyzstan. GDP growth accelerated further to 8.5 percent during the first four months of 1998. Industrial production, however, remains flat, rising by only 0.3 percent last year and increasing by just 0.4 percent during January-April 1998.

Nonetheless, the oil sector is doing well so far in 1998. After falling from 12.5 million tons in 1990 to 9 million in 1997, first-quarter production--at 2.24 million tons--was well ahead of the pace necessary to attain the 10.1 million tons targeted for 1998.

Inflation has all but disappeared, with consumer prices rising by only 0.4 percent in 1997 (on a December-to- December basis) and falling by the same percentage during the first quarter of 1998 compared with the same period last year. These are the lowest figures among transition countries. Low inflation has resulted largely from tight fiscal and monetary policy: budget deficits in the last two years have been under 3 percent of GDP and heavily financed by IMF credits.

Another reason for the low level of inflation is that the manat has been appreciating against the dollar. Since reaching 4,440 manats to $1 at the end of 1995, the exchange rate strengthened to 3,806 at the beginning of June. An appreciating currency reduces inflation by making imports cheaper, other things being equal.

Such an appreciation would generally raise concerns about potential balance-of-payments imbalances. Indeed, in 1997, Azerbaijan had a current account deficit exceeding $915 million, a very high 29 percent of GDP. Much of that red ink was accounted for by a trade deficit of $567 million. However, the current account deficits have been more than compensated for by capital account surpluses. In 1997, that surplus was $1.2 billion, 87 percent of which was generated by FDI.

Current account deficits are likely in the next few years, since imports of oil-related equipment and services will far exceed exports of crude oil. In the medium term, Azerbaijan will need to worry less about these deficits than about the effects of capital inflows, which will likely keep the exchange rate strong, probably making it difficult to export other goods. The author is a research scholar at the International Institute for Applied Systems Analysis in Laxenburg, Austria.


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