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Newsline - August 26, 1998




RUBLE PLUNGES

On 25 August, the value of the ruble fell 10 percent against the dollar, closing at 7.86 to $1. It was the biggest drop since "Black Tuesday," 11 October 1994, when the ruble sank more than 25 percent. Acting Prime Minister Viktor Chernomyrdin told reporters that the fall of ruble is both an "economic and a political issue." He said that "our economy is too closely linked to politics." Andrei Illarionov, director of the Moscow-based Economic Analysis Institute, said he can envision a 15 ruble/$1 exchange rate if Russian financial policy is not overhauled and the leadership of the Central Bank replaced. Earlier, Illarionov had declared a devaluation of the ruble inevitable (see "RFE/RL Newsline," 31 July 1998). JAC

GOVERNMENT ANNOUNCES DEBT PLAN

The government on 25 August rewarded patient investors by announcing details of its plan to restructure short-term debt. The plan was originally scheduled for release on 24 August but was held up until acting Prime Minister Chernomyrdin was able to review it. According to ITAR-TASS, investors holding treasury bills that mature within three years or less will receive 5 percent of the bonds' face value in cash and the opportunity to trade them for three new issues of Russian securities that will mature over three to five years and pay interest rates ranging from 20 percent to 30 percent. Investors will also have the option of swapping their bonds denominated in rubles for securities denominated in dollars, which pay a lower annual interest rate of 5 percent and mature in 2006. JAC

PURGE OF REFORMERS PREDICTED...

Russian Regions faction leader Oleg Morozov told ITAR-TASS on 25 August that the new government is unlikely to include any "first- wave reformists." Echoing this sentiment, Vladimir Ryzhkov, Duma First Deputy Speaker and member of the Our Home is Russia faction, told "Segodnya" that the absence of presidential envoy to international financial institutions Anatolii Chubais, Russia's Democratic Choice leader Yegor Gaidar, and former Deputy Prime Minister Boris Nemtsov is a condition for the Duma's confirming Chernomyrdin's candidacy. Morozov said that acting Deputy Prime Minister Oleg Sysuev and Chubais will not be included in the new cabinet. However, acting Deputy Prime Minister and State Tax Service head Boris Fedorov will be kept as an "emblem of the government's preservation of its market orientation," according to "Russkii Telegraf" on 25 August. Acting Deputy Prime Minister Viktor Khristenko's duties have already in effect been transferred to Fedorov, suggesting that Khristenko will be asked to leave. The newspaper considers the dismissal of acting Minister of Fuel and Energy Sergei Generalov inevitable. JAC

...WHILE PROTEGES, UNAMBITIOUS REMAIN

According to "Russkii telegraf," Chernomyrdin will preserve the position of his loyalists, such as Minister of State Property Farit Gazizullin and Federal Bankruptcy Agency head Georgii Tal. In addition, acting Minister of Industry Yurii Maslyukov is likely to stay because of his "moderate views on the economy and absence of any political ambition." In its own "political horoscope," "Segodnya" reckoned that at least a few other ministers are unlikely to be replaced: Minister of Science and Technology Vladimir Bulgak, Minister of Atomic Energy Yevgenii Adamov, and Justice Minister Pavel Krasheninnikov. Defense Minister Igor Sergeev and Minister of Internal Affairs Sergei Stepashin have "guaranteed places" in the new government. And President Boris Yeltsin continues to have great faith in Federal Security Service chief Vladimir Putin, according to the newspaper. JAC

BANK CONSOLIDATION PROCEEDS

Following last week's statement by the Central Bank that consolidation in the banking industry may prevent a system collapse, Uneximbank, Most Bank, and Menatep announced on 25 August plans to merge. According to RFE/RL, Uneximbank and Menatep are Russia's fourth- and seventh-largest banks in terms of assets, while Most trails behind in 17th place. Menatep board chairman Aleksandr Zurabov said that the banks' different strengths complement one another. Uneximbank specializes in servicing large corporate clients, while Most focuses mainly on individuals. Each bank will contribute 51 percent of their stock into a holding company. The banks still need to work out the values of the shares of the new bank and undergo an audit by an international accounting firm. The Uneximbank-Menatep- Most merger follows an earlier announcement of a merger between National Reserve Bank and Inkombank (see "RFE/RL Newsline," 25 August 1998). However, the "Financial Times" clarified on 26 August that the banks are still negotiating. JAC

BUMPS ALONG ROAD TO COALITION

Two Duma factions have put up at least some resistance to Chernomyrdin's bid to form a coalition government. Yabloko deputy Sergei Ivanenko told Interfax on 25 August that Yabloko will not hold talks on membership in the Chernomyrdin government. According to Ivanenko, the results of Chernomyrdin's prior work in government were "pitiable." The same day, Viktor Ilyukhin, chairman of the Duma's Security Committee and member of the Communist Party, threatened that unless at least 10 ministerial posts are allotted to left opposition groups, Chernomyrdin will not be confirmed "even under the threat of dissolution." JAC

OUR HOME IS RUSSIA SUBMITS WISHLIST, BLACKLIST

Our Home is Russia (NDR) faction leader Aleksandr Shokhin said that the NDR expects to place six to seven people in the cabinet. He revealed that his name was floated for possible inclusion in the cabinet in discussions with Chernomyrdin but that no final decision was reached. NDR Deputy Chairman Georgii Boos told Interfax that NDR also drew up a list of people who must not be included in the government. Among these names were Chubais, Nemtsov, financial magnate Boris Berezovskii, former Minister of Economy Yevgenii Yasin, Central Bank chief Sergei Dubinin, Finance Minister Mikhail Zadornov, State Tax Service head Fedorov, and former Deputy Prime Minister Ivan Rybkin. JAC

BEREZOVSKII PULLING STRINGS?

Two newspapers controlled by Vladimir Potanin's Oneksimbank, "Komsomolskaya pravda" and "Russkii telegraf," have accused financial magnate Boris Berezovskii of orchestrating Chernomyrdin's return to power. "Russkii telegraf" on 25 August points out that although many Russian newspapers called for a change in the Russian government, only one mentioned Chernomyrdin as a possibility, "Nezavisimaya gazeta," which receives financial backing from Berezovskii's LogoVAZ Group. "No one was suggesting Chernomyrdin because the consensus was that he was responsible for the present collapse," the newspaper commented. The same day, "Komsomolskaya pravda" reported that Chernomyrdin spent most of his sabbatical from government service in the company of Berezovskii and that Berezovskii met with Chubais the day before Yeltsin dismissed Sergei Kirienko's government. JAC

RUSSIAN HACKERS TARGET GOVERNMENT, BANKS

"Kultura" on 20 August describes a little-known department within the Federal Agency for Governmental Liaison and Information, whose primary task is to prevent "break-ins" on government computers. According to the agency's deputy director-general and liaison to the Main Security Department, Lieutenant General Aleksandr Pavlovich Alferov, the presidential administration's web server is under constant attack, including during President Yeltsin's interview on the Internet. There have also been numerous attempts to access the Justice Ministry's computer network; agency specialists working together with Justice Ministry officials were able to defend the system from collapse. Even more vulnerable than government agencies are some banks, who reportedly choose, install, or use computer security systems incompetently. Alferov says that inexpert usage of foreign databases has allowed some hackers to access a system within 10 minutes. JAC

NEW THEORY OF KALMYK JOURNALIST'S MURDER

"Nezavisimaya gazeta" on 25 August summarized what it claims is the confession of one of three men accused of the June murder of Larisa Yudina, editor of the opposition newspaper "Sovetskaya Kalmykiya." According to Vladimir Shanukov, he set up a meeting with Yudina by offering her information on the firm ARIS in the hope she would agree to purchase an apartment he wanted to sell. When Yudina realized that Shanukov did not have any such information, a heated altercation ensued that ended with Shanukov stabbing Yudina. This account of an apparently unpremeditated murder contradicts claims by Russian Interior Minister Sergei Stepashin and Yabloko leader Grigorii Yavlinskii that Yudina's death was a contract killing on political grounds (see "RFE/RL Newsline," 9 and 12 June 1998). LF

DEMONSTRATORS MARCH ON DAGESTANI CAPITAL

All roads to the Dagestani capital, Makhachkala, were closed on 26 August, and the city's entire police force placed on the alert, according to RFE/RL's North Caucasus correspondent. Following mass meetings earlier that day in the towns of Kizilyurt and Khasavyurt to demand the resignation of the Dagestani government and the clarification of the 21 August murder of mufti Saidmukhamed Abubakarov, up to10,000 people, some of them armed, are reportedly marching on Makhachkala. State Council chairman Magomedali Magomadov returned to the capital after abandoning plans to hold talks with the inhabitants of three mountain villages that last week declared an "independent Islamic territory." LF




GEORGIAN LEADERS CONDEMN ZUGDIDI BOMBING

Following Georgian President Eduard Shevardnadze's condemnation (see "RFE/RL Newsline," 25 August 1998), Minister of State Vazha Lortkipanidze on 25 August denounced the bombing the previous day of the local administration building in the west Georgian town of Zugdidi. Lortkipanidze said the bombing was intended "to destabilize the situation in the region and in the republic as a whole, including Tbilisi," according to ITAR-TASS. In a letter to UN Secretary-General Kofi Annan on 25 August, Tamaz Nadareishvili, chairman of the Abkhaz parliament- in-exile, blamed the explosion on Abkhazia and requested that the UN and OSCE condemn the "vandalism of Abkhaz separatists and their back-up forces," Caucasus Press reported. Instruction in Zugdidi's schools will not begin as scheduled on 1 September because all school buildings are occupied by fugitives from Abkhazia's Gali Raion. Those fugitives cannot return to their homes and refuse to move to other Georgian towns. LF

LINE-UP OF ARMENIAN PRESIDENTIAL COUNCIL ANNOUNCED

Two Armenian opposition parties, the Communists and Vazgen Manukian's National Democratic Union, have declined President Robert Kocharian's offer of representation on the Presidential Council, RFE/RL's Yerevan bureau reported on 25 August. That body was created in order to offer a discussion forum to parties that either have no representation or are underrepresented in the parliament. The provisional composition of the council was announced on 25 August and comprises 11 parties, including eight that backed Kocharian's presidential bid as well as the former ruling Armenian Pan-National Movement (HHSh). The People's Party, recently founded by defeated presidential candidate Karen Demirchian, is not represented on the Presidential Council, but it is unclear whether it was invited to join. LF

FORMER DEPUTY PARLIAMENT SPEAKER ASSESSES SITUATION IN ARMENIA

In an interview with RFE/RL's Yerevan bureau on 25 August, former deputy parliamentary speaker Ara Sahakian, a prominent HHSh member, described the present Armenian leadership as "authoritarian." The negative phenomena that existed under the previous leadership are becoming more pervasive, he said, adding that the positive ones are being marginalized. Sahakian argued that only the resignation of the present government can reverse that trend. LF

AZERBAIJAN OPPOSITION PLANS SECOND MASS RALLY

Azerbaijani opposition parties aligned in the Movement for Democratic Elections and Democratic Reforms have agreed to convene a second mass rally to demand further democratization of the conditions for holding the 11 October presidential elections, changes in social policy, and the return of Nagorno-Karabakh to Baku's jurisdiction, RFE/RL's Baku bureau reported. Musavat Party chairman Isa Gambar told Turan on 25 August that the opposition will not formally request permission from Baku mayor Rafael Allakhverdiev to hold the demonstration on Baku's central Liberty Square, as the country's constitution enshrines the right to public gatherings. Allakhverdiev had imposed a ban on gatherings in the square two days before the opposition's 15 August rallies. Gambar also accused the Azerbaijani leadership of preparing to gerrymander the elections results. He said the outcome of the poll will determine the country's future political course. LF

UZBEK, TAJIK PRESIDENTS GIVE PAKISTANI MINISTER COLD SHOULDER...

Pakistani Minister of State for Foreign Affairs Mohammed Kanju was in Uzbekistan and Tajikistan on 24-25 August but the presidents of both countries refused to meet with him, ITAR-TASS and Interfax reported. Instead,. Kanju met with the two countries' foreign ministers, whom he told that his country does not militarily support Afghanistan's Taliban movement. There are no reports that either the Tajik or Uzbek foreign minister raised the question of Pakistani support for radical Islamic groups in the CIS Central Asian states. However, Uzbekistan has made that claim on several occasions, and Tajikistan earlier this week expelled four Pakistani citizens for allegedly disseminating Wahhabi and/or Taliban propaganda in Dushanbe (see "RFE/RL Newsline," 24 August 1998). BP

...WHILE TURKMEN PRESIDENT RECEIVES HIM

Kanju arrived in Ashgabat on 25 August and held talks with Turkmen President Saparmurat Niyazov, RFE/RL correspondents reported. While the two discussed events in Afghanistan, the main focus of their talks was the plan to build a pipeline that will transport natural gas form Turkmenistan to Pakistan via Afghanistan. One of the major partners in the deal, U.S. company UNOCAL, suspended its participation in the project last week following the U.S. bombing of suspected terrorist positions in Afghanistan. BP

FATE OF TAJIK OPPOSITION FIGHTERS IN AFGHANISTAN STILL UNCERTAIN

The United Tajik Opposition (UTO) said it is alarmed by delays in returning its remaining 200 fighters who are currently in Afghanistan, Interfax reported on 25 August. Under the terms of the June 1997 Tajik peace accord, the fighters are to be repatriated and integrated into the Tajik Army. However, their return is likely to be delayed further as the UN mission to Tajikistan, which is to oversee their repatriation, has scaled back its operation this week. That move is owing to the failure of the Tajik government and UTO to apprehend and bring to trial those responsible for murdering four UN employees in late July. In a related story, the number of UTO fighters who have taken the oath of allegiance is now put at some 4,000, with approximately 1,000 not yet having done so. BP

TURKMEN POLICE, INTERIOR MINISTRY OFFICIALS ARRESTED FOR CORRUPTION

The Turkmen Interior Ministry announced at a 25 August press conference that 30 police and Interior Ministry officials of varying rank have been arrested in an anti-corruption campaign, RFE/RL correspondents in Ashgabat reported. Turkmen Television broadcast the press conference, where the accused, wearing hand-cuffs, stood as Interior Ministry officials alleged the prisoners were guilty of taking bribes. BP

PROBLEMS GROW FOR AIR KAZAKHSTAN

More than 80 current and former employees of Air Kazakhstan, Kazakhstan's national airline, demonstrated outside the company's headquarters in Almaty on 25 August to demand back wages, ITAR-TASS reported. The pilots were asking for wages arrears dating back to February. Among the demonstrators were retired airline workers who have not received pensions or disability payments for injuries they sustained while employed by the airline. Those workers face a long-term problem because the Air Kazakhstan bought out the bankrupted Kazakhstan Aue Zholi in 1997 and refuses to pay any of its predecessor's debts. Prosecutor-General's Office recently announced that Air Kazakhstan has provided 222 free tickets for flights between Almaty and Astana to government officials. BP




IMF TO REVIEW UKRAINE'S ECONOMIC SITUATION BEFORE DECIDING ON LOAN

The IMF on 25 August announced that it may need more time to assess the effects on Ukraine of Russia's financial crisis and change of government before setting a date to approve a $2.2 billion loan to Ukraine, AP reported. The IMF Executive Board was expected to meet by the end of August to approve the first installment of the loan, totaling $200-250 million. Ukrainian officials have said the loan will be used primarily to replenish the National Bank's reserves. In the wake of the Russian ruble plunge, the Ukrainian hryvnya slid to 2.249 to $1 on 25 August, only slightly below the upper limit of 2.250 to $1 set by the government. JM

PROTESTING MINERS IN LUHANSK UNDER INVESTIGATION

The Luhansk Oblast Prosecutor's Office has launched an investigation into a clash between riot police and 150 miners who were protesting wage arrears, Ukrainian Radio and Television reported on 25 August. The clash took place in a Luhansk city park the previous day, Ukraine's Independence Day, when the miners gathered to burn a straw effigy. Police troops arrived at the scene after receiving an anonymous telephone call saying that the effigy contained an explosive device. The miners refused to let policemen examine the effigy and fought back. Twelve policemen and eight miners were hospitalized after the skirmish. JM

ODESSA ELECTS MAYOR

Ruslan Bodelan, former governor of Odessa Oblast, was elected Odessa mayor on 23 August, Ukrainian Television reported on 25 August. Bodelan, who was supported by the government in his mayoral bid, received some 100,000 votes (36 percent) in the ballot. More than 30 candidates ran in the election, and turnout was 36 percent. The previous mayoral elections in Odessa in March were declared invalid when the victor, former Odessa Mayor Eduard Hurvits, was found guilty of breaking the law. Hurvits was banned from running again. JM

LUKASHENKA TO RAISE MINIMUM WAGE FOR STATE EMPLOYEES

Belarusian President Alyaksandr Lukashenka has announced that the government will increase the minimum wage for state employees, RFE/RL's Belarusian Service reported on 25 August. The hike will take place in two stages: beginning 1 November, the minimum wage will be increased by 20 percent and as of 1 January 1999 by 25 percent. The current minimum wage in Belarus is 250,000 Belarusian rubles (some $4). JM

ESTONIAN AUDIT CHIEF CALLS FOR TWO MINISTERS' DISMISSAL

Head of State Audit Office Juhan Parts is urging that Prime Minister Mart Siimann dismiss Finance Minister Mart Opmann and Social Minister Tiiu Aro over the loss of state funds in Maapank, ETA reported on 25 August, citing the dailies "Postimees" and "Eesti Paevaleht." Parts reportedly sent a letter to Siimann summarizing what happened at Maapank and suggesting the dismissal of the two ministers. "Postimees" reported that criticism against Opmann and Aro focuses on the transfer of large sums of state funds to Maapank at a time when the bank's bankruptcy was imminent. Parts has said his report on Maapank will be publicly released next week. Maapank collapsed at the beginning of June reportedly owing to mismanagement and misappropriation of funds. JC

OSCE COMMISSIONER SAYS CITIZENSHIP AMENDMENTS 'NOT DANGEROUS' FOR LATVIANS...

Speaking in Riga on 25 August, OSCE High Commissioner on National Minorities Max van der Stoel said he hopes the Latvian people will know what they are voting for in the referendum on amendments to the citizenship law (see "RFE/RL Newsline," 25 August 1998). BNS quoted Van der Stoel as saying that he "hopes the Latvian people will comprehend what these amendments imply and what they don't imply." He stressed that amendments removing the so-called naturalization windows and automatically granting citizenship to children born after independence are "not dangerous" for the Latvian people. And in meetings at the Latvian Foreign Ministry the same day, Van der Stoel threw his support behind the amendments, which, he said, will significantly influence Latvia's international position--for example, in cooperation with the EU. JC

...WHILE MOSCOW AGAIN EXPRESSES CONCERN

Also on 25 August, Russian Foreign Ministry spokesman Vladimir Rakhmanin said that the "humanitarian situation" in Latvia continues to be a cause of "serious concern" for Moscow, ITAR-TASS reported. Referring to the campaign to collect signatures for a referendum on the citizenship law amendments, Rakhmanin noted that "national-radical forces" in Latvia have succeeded in preventing those amendments from entering into force. "When Latvian politicians urge the parliament to pass the amendments and then the same politicians suggest their abrogation, this deserves to be classed as hypocrisy," he commented. The Fatherland and Freedom party, of which Prime Minister Guntars Krasts is a member, was the driving force behind the referendum. JC

POLISH BISHOPS SAY PAPAL CROSS TO STAY AT AUSCHWITZ

Polish Catholic Church leaders met in Czestochowa on 25 August to formulate the Church's official stance on the Polish-Jewish controversy over some 150 crosses erected outside the former Auschwitz concentration camp. In a statement issued after the meeting, the Polish bishops expressed their "conviction" that the large papal cross erected in 1979 "will remain in place," while the newly erected crosses "will find a respectful place in our parishes and churches," AP reported on 26 August. The statement appeals for an end to erecting further crosses, saying that "escalating the conflict brings harm to the Church and turns against our homeland." The bishops added that the campaign of erecting crosses at Auschwitz "painfully harms the different sensitivity of our brothers, the Jews." JM

POLISH FARMERS SUSPEND PROTEST OVER GRAIN IMPORTS

Leaders of Poland's three largest farmers trade unions have appealed to farmers to suspend until 10 September all road blockades set up to protest grain imports, "Rzeczpospolita" reported on 26 August. If the government does not begin "honest negotiations" before that date, the trade unions threaten to launch a nationwide protest. Polish farmers demand that the government introduce higher prices and state contracts for agricultural products as well as reduce grain imports. Prime Minister Jerzy Buzek said on 25 August that grain imports this month decreased fivefold. He noted that the government cannot reduce those imports further without violating international agreements. Meanwhile, the police is suing some 500 farmers for their participation in road blockades in recent months. JM

MECIAR SAYS SLOVAK UNITY THREATENED

Prime Minister Vladimir Meciar on 25 August said "those who believe that Slovakia's ethnic Hungarians must integrate into Europe together with Hungary are the advocates of Slovakia's partition," Hungarian media reported. He alleged that Hungarian nationalists seek to control Slovak politics and that "helped by certain circles in Budapest," they aim at "the common integration of Hungarians into Europe". Last week, Hungarian Prime Minister Viktor Orban said that it would be in both countries' interests if Slovakia joined the EU. Meciar also expressed concern about the Slovak opposition's readiness to join forces with Hungarian political forces in Slovakia to form an alliance against him. MSZ

HUNGARIAN PREMIER SAYS HIS PARTY WAS SPIED ON

Orban on 25 August said that data on him and other leaders of the Federation of Young Democrats-Hungarian Civic Party were illegally collected before the May parliamentary elections. He said members of his cabinet are facing "a well-constructed slander campaign based on information illegally obtained under the previous government." Former Prime Minister Gyula Horn and other leading officials of his administration firmly deny the charge, saying the secret services worked within the law. Orban has ordered a government investigation into the case. MSZ




UCK SPOKESMAN PLEDGES TO HELP FIND MISSING SERBS

Adem Demaci, who is one of Kosova's best-known politicians and also the political spokesman for the Kosova Liberation Army (UCK), told independent Belgrade Radio B- 92 on 26 August that he will contact UCK "headquarters" to see what can be done to free two employees of Serbian Radio Prishtina. Demaci told B-92 that the UCK does not engage in kidnapping but that its officials will try to find out who captured the men and arrange their release. The two men "disappeared" recently, and independent journalists and local Serbian officials have called for their release (see "RFE/RL Newsline," 25 August 1998). RFE/RL's South Slavic Service reported on 25 August that Bosko Drobnjak, who is the Serbian information secretary for Kosova, has appealed for help to Demaci. This marks the first time that Serbian government personnel have contacted a representative of the UCK in an official capacity. PM

SERBIAN AUTHORITIES HINDER REFUGEE RELIEF

Serbian forces continued their assault to the west and southwest of Prishtina on 25 August. The Prishtina daily "Koha Ditore" reported that at least 25 Kosovars died within 48 hours during the offensive. Meanwhile in Geneva, spokesmen for the United Nations High Commissioner for Refugees said that Serbian forces in Kosova are preventing UNHCR relief convoys from reaching encampments of displaced persons. The officials noted that one convoy consisting of 10 vehicles and goods to supply 30,000 persons is waiting to leave Prishtina. The spokesmen added that humanitarian conditions in Kosova resemble those in Bosnia at the beginning of the conflict there, the "Frankfurter Allgemeine Zeitung" reported. PM

MILOSEVIC WANTS SANCTIONS LIFTED

Yugoslav President Slobodan Milosevic told U.S. Ambassador to Macedonia Christopher Hill in Belgrade on 25 August that "if the U.S. truly wants to do something positive for this region, it must lift the sanctions" in force against federal Yugoslavia in response to its crackdown in Kosova. Milosevic added that he will continue to fight "terrorism" in the province but said that he seeks a dialogue to end the unrest. He charged that the violence is the work of "terrorist gangs." Hill has spent several weeks engaged in seemingly fruitless shuttle diplomacy in the region. PM

BELGRADE CHARGES ALBANIA WITH BORDER VIOLATION

The federal Yugoslav Defense Ministry on 25 August issued a statement accusing Albanian forces of firing two mortar shells into Yugoslav territory. The announcement said the incident occurred on 24 August near the border outpost of Kosare in Kosova. Meanwhile, AP reported from Padesh, on the Albanian side of the border, that the civilian population there has begun arming itself with machine guns and bazookas following several recent border incidents in the area. FS

BOSNIAN CROAT LEADER SNUBS TUDJMAN

Kresimir Zubak, who is the Croatian member of the Bosnian joint presidency, said in Sarajevo on 25 August that he will not attend a meeting of leading politicians from Bosnia- Herzegovina with Croatian President Franjo Tudjman slated for the following day. Tudjman recently invited several politicians to Zagreb to discuss the Bosnian general elections, which will take place on 12-13 September. Most invitees refused on the grounds that Tudjman allegedly favors Ante Jelavic of the nationalist Croatian Democratic Community (HDZ). Zubak broke with the HDZ after Jelavic's election as party leader this past spring and founded his own New Croatian Initiative. Observers noted that Zubak's refusal of Tudjman's invitation is the clearest signal to date that Zubak intends to follow the example of Republika Srpska President Biljana Plavsic by breaking with nationalists and seeking to work with moderates and the international community. PM

MUSLIMS NOT WELCOME IN VITEZ

Hanns Schumacher, who is a deputy to the international community's Carlos Westendorp, obtained no agreement from local Croats in the central Bosnian town of Vitez on 25 August, when he tried to negotiate the return of several hundred Muslim refugees to their former homes in nearby villages. Schumacher's spokeswoman told AP that the Croats "were very upset and not very friendly." She added that Schumacher holds the HDZ responsible for the failure of the meeting, because its officials had earlier assured him of its success. The Muslims attempted to go home one month ago but were driven out by a Croatian mob. Meanwhile in Sarajevo, spokesmen for SFOR said that investigators have concluded that charges made by the Madrid daily "El Mundo" in May that peacekeepers and Bosnian gangs are running a prostitution ring are groundless (see "RFE/RL Newsline," 26 May 1998). PM

SLOVENIA, CROATIA TO SEEK ARBITRATION

Slovenian Foreign Minister Boris Frlec and his Croatian counterpart, Mate Granic, agreed in Mokrice, Slovenia, on 25 August to try to resolve four outstanding problems between their two countries within three months. If any issues remain outstanding after that deadline, Croatia and Slovenia will seek international arbitration in order to put an end to disputes that have bedeviled their relations since they seceded from the former Yugoslavia in 1991. The issues are: control of the jointly-owned nuclear power plant at Krsko, Slovenia; demarcation of land and sea frontiers; ensuring property rights for Slovenes who own homes on Croatia' sea coast; and guaranteeing the deposits of Croats in the Ljubljanska Banka. PM

ALBANIAN PREMIER DENIES HE ORDERED FORMER MINISTERS' ARREST...

Fatos Nano, in a televised address to the nation on 25 August, strongly denied opposition claims that he recently ordered the arrests of three former ministers and three other former high-ranking officials. Public prosecutors have charged the six with having committed crimes against humanity during the unrest in 1997 (see "RFE/RL Newsline" 24 August 1998). Nano said: "I reject with disgust...every charge [of involvement in] the arrest of the six." He stressed that his governing coalition has "resisted the temptation...to interfere with the work of the judiciary." Alluding to his own imprisonment under the previous government, he stressed: "I know far better than anybody else what it means to be a victim of a judicial branch that [does the work of those wielding] political power." He added that his only "revenge" for his own imprisonment will be to build a "modern Albania." FS

...WHILE HOPES FOR RECONCILIATION FADE

"Koha Jone" Editor-in-Chief Armand Shkullaku told Reuters on 25 August that "if there was any hope for the [opposition Democratic Party] to return to parliament or the talks about the drafting of a new constitution, now this hope has totally disappeared." He added that "the arrests will, without doubt, only aggravate the situation." The Democrats have been intermittently boycotting the parliament since October 1997 on the grounds that the government has allegedly subjected them to political persecution. Opposition leader and former President Sali Berisha was due to meet Nano at the end of August for talks on a new constitution, but Berisha rejected the invitation after the arrests. Reuters quoted an unidentified Western official as saying that "there will [not] be any repercussions [over the arrests] among voters," adding that ordinary "Albanians are too busy with their own personal survival" to care. FS

TENSIONS WITHIN ETHNIC HUNGARIAN PARTY IN ROMANIA

The chairman of the Hungarian Democratic Federation of Romania (UDMR), Bela Marko, says the UDMR's honorary chairman, Bishop Laszlo Tokes, must choose between his present honorary position and that of leader of a "platform" within the UDMR, the independent Pro TV reported on 25 August. Marko was responding to Tokes' initiative to hold a "Szeklers' Forum" in the Transylvanian town of Cernatul de Jos next month and to his criticism of the UDMR's participation in the ruling coalition. In an interview with the Budapest daily "Nepszava" on 24 August, Marko said that if the government rejects the initiative to divide the Babes-Bolyai university in Cluj into a Romanian and a Hungarian university, another Hungarian-language state university will have to be set up in the same town. He accused the UDMR's coalition partners of "politicking" and of "thinking more of the next elections than of the next generation." MS

OPPOSITION TO ROMANIAN FINANCE MINISTER'S INTENTION TO CUT BUDGET

Defense Minister Victor Babiuc on 25 August said Finance Minister Daniel Daianu's proposed cuts in military spending mean that the army will barely be able to cover wages and the costs of food and military equipment. He added that the Finance Ministry "does not comprehend it is endangering national security." Health Minister Hajdu Gabor has likewise opposed the envisaged cuts in his ministry's allocations. Also on 25 August, Daianu met with representatives of the main trade unions and told them that the economic situation does not make it possible to cover wage indexation till the end of 1998. According to trade union leaders, this is a "death sentence" for unionists. Meanwhile, the largest mining trade union has announced it will launch a strike on 27 August, RFE/RL's Bucharest bureau reported.

ROMANIAN ROMA SUE EXTREMIST LEADER

The Romani Party on 25 August announced it has asked the Prosecutor- General's Office to place Greater Romania Party leader Corneliu Vadim Tudor under investigation for "spreading chauvinistic-nationalist propaganda" and for "incitement to acts of violence and to racial hatred," AFP reported. Reacting to Tudor's declaration earlier this month that Roma who refuse "integration" into Romanian society must be "interned" in special settlements, the Romani Party Secretary-General, Ivan Gheorghe, said that a "state that tolerates such declarations is a racist state." MS

MOLDOVAN-RUN SCHOOLS IN TRANSDNIESTER TO REMAIN OPEN

All Transdniester schools run by Chisinau are to remain open during the new school year, which begins on 1 September, Infotag reported on 25 August. An agreement has been reached between the Moldovan and the Transdniester Ministries of Education after a visit paid to Tiraspol by Moldovan Education Minister Anatol Grimalschi earlier this month. Chisinau will continue financing these schools, including one in Tiraspol where teaching is conducted using the Latin alphabet. Earlier, the separatist authorities announced they will close down that school. Six other Moldovan schools in the Transdniester also use the Latin script. In Moldova itself, the education and science trade union announced a strike beginning on 2 September to protest wage arrears, RFE/RL's Chisinau bureau reported. MS

BULGARIAN PRESIDENT APPOINTS TOP MILITARY COMMANDERS

President Petar Stoyanov on 25 August appointed Major-General Pencho Dobrev as deputy chief of staff in charge of material and technical supplies. Major General Stefan Nikolov was appointed commander of the Rapid Reaction Forces. Lieutenant General Stefan Popov has been relieved from his duties as commander of the Bulgarian air force but remains the chief of the air force's General Staff. General Ginio Tonev has been dismissed as commander of the land forces but remains chief of the land forces' General Staff, BTA reported. MS




IMPROVING ECONOMY HAS YET TO AFFECT LIVING STANDARDS IN ARMENIA


by Emil Danielyan

With robust economic growth and low inflation, the Armenian economy has made significant gains in the first half of 1998, but ongoing problems, such as high unemployment, mean there has been little impact on living standards. The Armenian government has claimed a major success in implementing economic reforms. Inflation fell to its lowest level since 1991, 0.9 percent, while the economy grew 6.7 percent in the first six months of this year, compared with the same period in 1997. Industrial output increased 3.2 percent, owing to a 40 percent upswing in light industry and textiles, in particular. Also contributing to the growth was a 25 percent increase in the construction sector.

Most of the $188 million investment during the first six months of1998 was channeled into newly privatized enterprises. Direct foreign investment reached $98 million, an eightfold increase over the first half of 1997. This was a result of the government's increased reliance on cash (as opposed to voucher) privatization and on international tenders, which are part of the privatization process.

Economic growth has meant a 50 percent increase in budget revenues. With zero net borrowing from the Central Bank and with tax revenues doubling, the budget deficit shrunk by one quarter. The government stresses that increased tax revenues are due to improved tax administration and its strategy of reducing tax rates but expanding the tax base.

These positive trends prompted Finance and Economics Minister Eduard Sandoyan in late July to announce a "breakthrough" toward stable growth. But George Anayiotos, the IMF's resident representative in Armenia, takes a more cautious view, pointing to a "very low base" upon which the success is being built. Indeed, the figures become less impressive bearing in mind the dramatic economic slump in the early 1990s that followed the break-up of the Soviet Union and the war in Nagorno- Karabakh.

Another economist, former Yerevan mayor, Vahagn Khachatrian, stressed in an interview with RFE/RL that the improvement is in comparison with last year's economic slowdown, which hit a low point in the first six months.

In fact, the recovery started in late 1997, after the government tightened monetary-fiscal policy and accelerated structural reforms. "Significant progress" was noted by the IMF Executive Board in February. Armenia is in its final year of the IMF's $136.6 million loan program (Enhanced Structural Adjustment Facility), launched in February 1996. Negotiations are under way on the release of the last $45 million tranche, Anayiotos told RFE/RL that Yerevan has reason to expect it will receive the loan, as it is on schedule to meet most ESAF targets for 1998.

In line with those targets, 7 percent economic growth appears a possibility. Armenia's foreign reserves currently total $309 million and are sufficient to cover 4.2 months of imports (the ESAF requirement is 3.5 months). Similarly, inflation is likely to be below the agreed 8 percent limit this year, having reached 8 percent in the first quarter but having bounced back as consumer prices fell dramatically in the second quarter. Continuing deflation has prompted the government to hint that it will ease its rigorous macroeconomic policy. But that move would not be welcomed by the IMF, which has called it "unjustified." Anayiotos argues that high inflation is not conducive to growth and that keeping inflation low is essential.

Nevertheless, interest rates are falling in Armenia. The Central Bank earlier this month further reduced its re- financing rate to 33 percent (from 47 percent in June). According to Khachatrian, even this is too high for industry, given the comparatively low level of inflation.

But Armenia is apparently not living up to the ESAF projection on its current account deficit, which reportedly exceeds 20 percent of GDP, well above the targeted 12.5 percent for the whole of 1998. This chronic problem was slightly alleviated in the first half of the year, with exports up 30 percent and imports down 2.7 percent. Sandoyan agrees that exports should be growing faster to allow Armenia to cope with its $800 million foreign debt.

In Khachatrian's words, an economic boom could be only export-oriented because domestic consumption has reached its upper limit in Armenia. A resolution of the long-standing Nagorno-Karabakh conflict and the opening of the borders with Azerbaijan and Turkey, he said, "would expand our markets." The government, however, stresses the need to improve conditions at home to attract foreign capital. Such improvements would include liberal trade laws, a freer trade regime, independent courts, economic and political stability, and a secondary market for securities.

In general, the latest economic improvements are having little effect on living standards, which are still lower than during the Soviet era. Unemployment--the number one social problem--remains extremely high: the official figure is 9 percent, but the real figure is thought to be much higher. The authorities admit that at least several years are needed for those standards to be significantly raised, even with the projected 7 percent growth. As the IMF representative says, success is contingent on "consistency and continuity" in pursuing the appropriate monetary-fiscal policies and structural reforms. Judging from its assurances and its short-term record, the Armenian government is keen to pursue both. The author is an RFE/RL correspondent based in Yerevan.


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