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Business Watch: February 12, 2002

12 February 2002, Volume 2, Number 6
BP is in early talks with Tyumen Oil Co. (TNK), Russia's third-largest oil company, to acquire a stake. One source told Reuters that, "This is by no means a done deal, but it's an option being looked at." TNK and BP were embroiled for years in a dispute over a subsidiary of Sidanko, and it is believed that the talks are linked to TNK plans to fully merge with Sidanko. Late last year, one of Sidanko's most important assets, west Siberia producer Chernogorneft, was returned to its control after a lengthy struggle between BP and TNK. BP holds 10 percent of Sidanko, while TNK hold 84 percent. TNK Executive Director German Khan said in January the company was planning to consolidate its multiple assets, including Sidanko, bringing them under a new parent company TNK-International. BP's multinational status and stock-market value of more than $150 billion dwarfs privately-held and debt-laden TNK in terms of financial firepower. Including Sidanko's near-400,000 barrels a day, TNK produces over 1 million barrels of oil equivalent a day of oil and gas. Other assets that TNK now plans to bring under the roof of TNK International include its controlling stake in Onako, an oil firm in the Urals bought from the state in 2000 for $1.08 billion and managed together with Sibneft. TNK is also a partner with BP in the giant Kovykta gas field in Irkutsk region in Eastern Siberia, in which it holds 25 percent and BP owns 30 percent. (JMR)

Ukraine's president, Leonid Kuchma, failed on 4 February to persuade visiting Polish Prime Minister Leszek Miller to oppose the building of a new gas pipeline linking Russia and Western Europe but bypassing Ukraine, Xinhua reported. Miller said that only after reviewing Russia's proposal could Poland outline its own position. The pipeline is planned to run from Russia through Belarus and Poland. A team of Russian officials are due to visit Poland in mid-February to discuss the issue. Ukrainian Prime Minister Anatoliy Kinakh said the current gas pipeline that runs through Ukraine conveys 120 billion cubic meters of gas to Europe a year, far from its annual shipping capacity of about 170 billion cubic meters. Ukraine would not allow the amount of transit gas to fall and would protect its strategic interests, Kinakh stressed. He believes that Poland and the European Union will side with Ukraine on this matter. (JMR)

Russia has raised the limit of funds that foreigners can invest from special accounts where money is kept after the 1998 restructuring of domestic debt. The limit changed from 2 billion rubles ($65 million) to 10 billion rubles ($325 million). Reuters reported that the "S" accounts are estimated to hold around 100 billion rubles ($3.3 billion). The money was frozen in the accounts to prevent a flood of funds onto the local market and can be invested in companies' share capital or other state-approved projects. Any projects approved for investment have to be for a minimum of three years, after which the funds can be transferred to a normal account and repatriated if desired. The Central Bank also offers auctions of hard currency for the funds from the restructuring, but the amounts offered at the sales, usually around $50 million, are small compared with demand. (JMR)

RUSAL TO RAISE OUTPUT IN 2002 (30 January)
Russian Aluminum (RusAL), the world's second-largest producer of the metal, said its output for 2002 will rise slightly but exports will decline. Chief Operations Officer Aleksandr Bulygin told Reuters, "This year's aluminum production will be 5,000 tons more than last year and will amount to 2.464 million tons." He added, "The portion of exports will be 82 percent compared with 83 percent in 2001. We are planning to channel about 39 percent [of exports] to Southeast Asia, including China, Korea, Japan, and Taiwan, while the rest will be distributed equally between Europe and the United States." Bulygin said he expects demand for aluminum made by RusAl to increase in the U.S. in the second half of the year, when stocks accumulated by consumers start to run out. The U.S. accounted for 11 percent of RusAl's aluminum exports in 2001, while Southeast Asia accounted for 32 percent, and Europe for the remainder. Bulygin said the company's 2001 financial results are worse than expected, due in part to lower prices for the metal and world stagnation. He declined to give figures, saying they have not yet been finalized. This year the company plans to invest $150 million in modernization. RusAl includes the country's largest aluminum smelters Bratsk, Krasnoyarsk, and Sayansk, as well as the fifth-largest plant, Novokuznetsk. It also owns alumina plants -- Achinsk in Russia, Mykolayivsky in Ukraine, and Oradea in Romania -- as well as some aluminum products plants. (JMR)

Kaliningrad-based Yantarenergo energy company has halted power supplies to some Baltic Fleet facilities for overdue energy bills, Interfax reported on 2 February. The fleet's debts grew more than 30 million rubles ($980,000) in January and now stand at 150 million rubles, Yantarenergo's press service said. The blackouts will not affect strategic facilities, according to the press service. (TSK)

Coca-Cola and PepsiCo are planning to boost production in Russia in 2002, "The Moscow Times" reported. According to the source, Coca-Cola has announced plans to increase production by 30 percent at its St. Petersburg plant to 150 million liters this year. Pepsi is planning to invest $20 million on expanding production at its Moscow plant. Aleksandr Shalnev, a Pepsi board member, was quoted by Interfax as saying that the funds will go into a new soft drink production line. The line is to be launched in spring. (TSK)

Kazakhstan's national railway monopoly, Kazakhstan Temir Zholy, is considering plans to borrow 100 million to 150 million in euros or dollars through five-year Eurobonds in March, Reuters reported. The company had planned to borrow last year, but the economic slowdown and terrorist attacks in the U.S. thwarted investment. Temir Zholy Financial Director Aset Shatekov said, "We are now planning the issue for March without a roadshow, if the market situation is favorable. The planned issue remains worth 100 million to 150 million, in euros or dollars, depending on demand." Temir Zholy is closely monitoring the roadshow of a $100 million seven-year Eurobond by national oil and gas company Kazakhoil to be held this week. Temir Zholy Chairman Baurzhan Baimukhanov said the proceeds from the issue will be used to upgrade the company's fast aging park of locomotives and the possible production of locomotives locally. Temir Zholy's net profit jumped to 18 billion tenge ($122 million) last year from 8.7 billion tenge in 2000. He said the company had channeled practically all of its revenue to repair tracks last year. Internal investment totaled 21 billion tenge (around $140 million) in 2001, he said. (JMR)

The "Financial Times" reported that Russian managers have their eyes on Western assets. Growing wealth and confidence has allowed Russian business leaders room to consider ambitious Western acquisitions. The trend has been highlighted by the tender for the sale of the Greek government's 23 percent stake in Hellenic Petroleum this spring. Two of the three front-runners are Russian oil companies Yukos and LUKoil. Gas monopoly Gazprom pioneered the new conjunctions when it created Wingas with the German group Wintershall. With an eye on developing exports, it also acquired a 10 percent stake in the gas pipeline linking the UK to continental Europe. Gazprom's Sibur last year bought assets in Hungary. United Heavy Machinery purchased the Upetrom plant in Romania. LUKoil also purchased U.S.-based Getty Petroleum operations in North America. Yukos late last year acquired the UK oil-servicing activities of the Norwegian group Kvaerner. One Moscow-based western consultant says, "Russians now have money. They understand that you eat or are eaten, and they want to be predators. To become an international player, you need a distribution network and you are not going to waste 50 years building it, so you buy." Relations between Russian and Western companies have been positive, since the new start of friendly government relations after 11 September. It remains uncertain whether the business relations will turn sour if the coalition against terrorism expands its war into Iraq. (JMR)

Moscow Narodny Bank said in a survey released on 1 February that Russia's manufacturing economy showed virtually no growth in January. The bank said in a report that its Purchasing Managers Index, compiled from the responses of 300 Russian manufacturers, showed a level of 50.1 in January after 52.1 in December. A reading below 50 indicates contraction. Moscow Narodny Bank group economist Paul Forrest said in a statement that the economy was still set for growth in 2002, expected to be 4 percent. He also noted that the current PMI data are consistent with the predicted growth. The survey's findings are in tune with figures from the State Statistics Committee over the last few months, which have shown that Russia's economic expansion is running out of steam. The survey said the output index dropped to 50.7 in January from 53.8 in December. The new export orders index rose to 51.3 from 49.8, due to contracts for new products being secured. (JMR)

Russia had a consolidated budget surplus of 312.2 billion rubles ($10.2 billion) in the first 11 months of 2001, up from 248.7 billion rubles in the same period of 2000, "The Moscow Times" reported. Consolidated budget revenues in the 11 months totaled 2.370 trillion rubles, up from 1.785 trillion the previous year, and included 2.072 trillion rubles in taxes, up from 1.499 trillion rubles in the first 11 months of 2000. (TSK)

Russia's income gap narrowed last year, with the wealthiest 10 percent earning 31.6 percent of total income in 2001, down from 32.5 percent the previous year, Interfax reported on 2 February. The poorest 10 percent, however, earned just 2.3 percent of income, compared with 2.4 percent in 2000. (TSK)

BAT SALES UP 15 PERCENT (4 February)
British American Tobacco's (BAT) sales in Russia increased 15 percent year-on-year to 47 billion cigarettes in 2001, Interfax reported the company as saying on 1 February. Local cigarette production grew 13 percent to 45 billion cigarettes, BAT said in a press release. The rest were imported from the U.S. and Britain. The growth was due to expansion into the regions, the company said. (TSK)

The Labor Ministry of the Russian Federation, Academy of National Economy, and Consulting Group Unikon/MC are organizing a seminar, "New Labor Code -- Management Lever and Employer's Accountability" on 20 February, "Vedomosti" reported. The goal of the seminar is to help an employer maximize the effectiveness of the human resources and comply with the provisions of the new Labor Code, effective from 1 February. On the agenda of the seminar are: the provisions of the new Labor Code; differences between the old and the new Labor Codes; relations with the trade unions; judicial and non-judicial ways to settle disputes and differences in compliance with the new Labor Code; and problems associated with the introduction and implementation of the new Labor Code. The seminar will be held at "Daev Plaza" Business Center in Moscow. (TSK)

On 21 February, Moscow-based Sheraton Palace Hotel is hosting a seminar, "Manager and Owner -- Tools of Delegating Power," "Vedomosti" reported. Delegation of power from a business owner to a professional manager is an essential condition to achieve successful and dynamic business growth, increase competitiveness, and attract investment. The goal of the seminar is to provide instruction on how to delegate power of business management to the hands of professionals. The seminar is organized by Rosexpert. (TSK)

Russian police on 2 February confiscated the car of TV6's most prominent anchorman, Yevgenii Kiselyov, Reuters reported. Kiselyov, along with two other well-known journalists, was released after the car was impounded. The men were on their way to a meeting at the time police detained the property. Police told Kiselyov that the car had been sought since 11January by bailiffs who closed down TV6 in accordance with a court ruling declaring the channel bankrupt. But Kiselyov said the car was his personal property. Aleksei Venediktov, editor in chief of Ekho Moskvy radio station, who was also in the car, told the Internet site "This is utterly absurd. The car has always stood outside Yevgenii Kiselyov's house. There was no need to look for it.... The police were very polite and acted strictly within the bailiff's orders.... But I have never believed in things happening by chance or coincidence." A police spokesman told Interfax news agency the car had been seized because court orders had declared Kiselyov a debtor in connection with the channel's financial difficulties. The owner of TV6, self-exiled Boris Berezovsky, has said that Russian President Vladimir Putin is aiming to control the media. He said in an interview with Reuters, "This is step-by-step, they are not able to stop all media in one day.... Putin thinks he is strong enough to stop all private mass media, including newspapers." Berezovsky predicted that his newspaper "Kommersant" may be the next target.(JMR)

Russia's governors decided to unite into a club to create a positive image of regional leaders, reported. The idea of opening a club and establishing a permanent forum of regional-administration representatives at the federal government agencies was discussed on 7 February in Moscow. An initiative to open a club belongs to the "Best Managers of a New Epoch" Fund and the Club of the Best Managers of Russia. According to fund President Viktor Zasypko, a governor's club is needed to serve in the capacity of a trade union, lobbyist organization, forum for informal discussion of the regional problems, and an ideological center. The main goal of the club will be creating a positive image of the governors in Russia and abroad. The club will be officially established on 19 April on the sidelines of the 4th All-Russia Congress of the best managers. (TSK)

AvtoVAZ President and Director General Aleksei Nikolaev and his first deputy, Nikolai Lyachenkov, resigned at the company's board meeting on 31 January. Some other vice presidents submitted their resignations alongside them. According to "Vremya Novostei," AvtoVAZ's personnel reshuffle was aimed at streamlining the management of the auto producer to attract investment. Vitalii Vilchik, vice president of the company's strategic and corporate management, was appointed president, Ekho Moskvy radio reported on 1 February. Vilchik is authorized to appoint Yurii Stepanov, personnel vice president, as his deputy and the first vice president. Vladimir Peresypkinskii, chief production engineer, was appointed personnel vice president. According to some analysts, rumors of a senior-management reshuffle has been in the air for several months. Nikolaev is an old team member, whereas Vilchik represents a new wave of AvtoVAZ management, analysts said. They added that a positive move was the appointment of a corporate management expert to the company's top position. According to Andrei Kormilitsyn from Troika Dialog, the changes in the company's top management reflect the AvtoVAZ leadership's determination to control all processes within the company. (TSK)

One of the most controversial of Chechen politicians, Beslan Gantamirov, has been appointed as media minister of the republic, Ekho Moskvy reported. The station speculated that Gantamirov might combine his responsibilities as media minister with those of the deputy prime minister. In the previous years, Gantamirov was a police officer, field commander, and mayor of Grozny. In the past few months, he worked at the representative office of the Russian president in the Southern Federal District. Presidential envoy to Chechnya Viktor Kazantsev did not confirm the reports of Gantamirov's appointment. (TSK)

Renaissance Capital upgraded Moscow city telephone company MGTS' rating to "speculative buy" from "hold" on 1 February, citing new 2000 figures that showed the stock was good value and the company improved transparency. MGTS published 2000 and revised 1998-99 numbers according to generally accepted accounting practices on its website. The figures showed a 2000 net profit of $9.42 million, down from $41.69 million the previous year. According to Reuters, United Financial Group also upgraded MGTS, boosting it to "buy" from "hold." (TSK)

Petr Aven is a Russian businessman who combines many qualities that attracts people's attention. He is not only the president of Alfa Bank, the largest private bank in Russia according to the "Financial Times," but a prominent former member of the first Yeltsin team who served as minister of external economic relations in the early 1990s. "Ogonek" magazine described Aven as one of the very few Russian economists who can explain the most sophisticated economic concepts and phenomena in simple and understandable language. He continues to be regarded as one of the most prominent politicians in Russia while deliberately distancing himself publicly from politics. He can appear modest and highly intelligent to friends or deliberately rude to his opponents. "Profil" described Aven as pragmatic but explosive, lively and optimistic but prone to depression. The magazine speculated that -- probably due to a combination of mutually exclusive qualities -- Aven, a highly influential politician of the early Yeltsin era, has succeeded in maintaining influence during the early part of the Putin era. Many observers, referring to Aven, speculate that self-exiled oligarch Boris "Berezovsky's zone [of influence] will not remain vacant."

Aven was born in 1955. Although from Latvia, his family name is of Swedish origin. Aven's father was a distinguished professor of computer engineering at the Moscow State University and a correspondent member of the Soviet Academy of Sciences. In 1977, Aven graduated from the department of economics at Moscow State University. He defended his candidate-of-science dissertation in mathematical methods of economic analysis. According to, from 1981 to 1988 Aven worked at the All-Union Institute of Systemic Research within the Soviet Academy of Sciences. From 1989 to 1991, he was an adviser to the Soviet Ministry of Foreign Affairs. He also worked on a contract basis at the Vienna International Institute of Applied Systemic Analysis. After the 1991 political coup, Aven headed the Committee of External Economic Relations, equivalent to the ministerial post. Family members did not approve of Aven's shift from science to politics. As Aven told "Profil," "I consider myself an adventurer because I like to start things from scratch. Otherwise, I would still be working for some think tank."

In January 1992, Aven became the head of the newly established Ministry of External Economic Relations. According to "Profil," Aven was not close with President Boris Yeltsin: Aven was summoned to report directly to the president only twice. "Why doesn't he like me?" Aven would ask Kremlin insiders. "You have a different oscillation amplitude," they used to respond. In fact, Aven was very different from the rest of the Kremlin officials. He would always speak fast, convincingly, and strictly to the point. As minister of external economic relations, Aven had optimistic views on Russia's foreign-trade prospects, stated. Improving the quality of the Russian goods through high technology used in the military sector, Russia could not only restore trade with Soviet traditional partners in Asia, Africa, and Latin America, but also develop trade with the West, Aven believed. The basic functions of his ministry, however, were limited to selling quotas and issuing licenses for external economic activity, as well as controlling the proper use of these licenses. Others claim that Aven was deeply involved in negotiations concerning foreign debts owed to Russia and have wondered what, if any, role this may have played in helping him get established in the private sector after government service.

Aven resigned in December 1992 with the entire team of then-Prime Minister Yegor Gaidar. In an interview to "Ogonek" in 2000, Aven said that his resignation from the government was painful. "Of course, I feel free in the private sector. I love freedom -- not only economic, but also private freedom. Nevertheless, it was a serious blow -- yesterday, you accompanied the president in his business trips, and today you are nobody. I could stay with the government, become an ambassador,.... I decided to start from the beginning. I like to try new things..." Aven decided to go into business. "All over the world, it's a common practice to go from politics to the business sector and vice versa," he told "Profil." In the winter of 1992, Aven provided consulting services to Berezovsky and his LogoVAZ. In 1993, Aven established his own financial consulting company, FinPA (Finances of Petr Aven). "I know the mechanism of decision-making in the government and I don't hide this," Aven said commenting on his choice to open a firm and its apparent success. "In fact, I am not alone. Almost every decision made by the Kremlin, is known to a broad circle of people within half an hour," Aven stated.

In 1994, Aven met with Mikhail Fridman, chairman of Alfa Group. At the time, Fridman did not want to remain in secondary roles in the banking industry any longer, "Profil" reported. Fridman needed a name, reputation, and the connections of the former minister. As a excellent professional, Aven expanded the clientele base of Alfa Bank and raised Fridman into an orbit of power. The bank began to serve Kremlin officials. Aven granted Fridman 50 percent of his FinPA and received 10 percent of Alfa Group in exchange. The post of Alfa Bank president was opened specifically for Aven. By 1994, Aven had proven that he was the right person to define the bank's strategy. According to some rumors, in 1998 Aven knew of Russia's imminent default and used the situation to the benefit of Alfa Bank. In fact, following the default, Alfa Bank was not only intact but even made profits. In an interview to "Ogonek," Aven stated that he never used his connections with the government to the benefit of Alfa Bank. However, he said, the knowledge of the governmental decision-making process helped the bank's growth. When asked by "Nezavisimaya gazeta" about any government member secretively providing information to Alfa Bank, Aven dismissed the statement as rumors and said his bank was removed from politics.

"Profil" concluded that Aven is a perfect example of stability and adaptability. A good skier and a tennis player, he is one of the first among the Russian political elite who knew how to combine intellect with energy, pragmatism with risk, and romanticism with cynicism. A fervent proponent of a free-market economy, according to "Nezavisimaya gazeta," Aven is not afraid of any business competition and likes challenges. In fact, "Ogonek" stated, despite his success, Aven is tempted to give up everything and start new projects. "I do not rule out the possibility that one day I will start something totally different, something I have never tried before. I will just give up everything and begin.... If you have any ideas, give me a call." (TSK)

On 1 February, the Communist-led government of Moldova began purging the last of its reformist-minded ministers. The Moldovan Anticorruption Council held a vote of no-confidence in Deputy Prime Minister and Economic Minister Andrei Cucu, his deputy Marian Lupu, and the Moldovan ambassador to the U.S., Ceslav Ciobanu, accusing them of attempting to persuade the U.S. Department of Commerce to reduce tariffs on a steel plant in the breakaway region of Transdniester. President Vladimir Voronin ordered the government to prepare proposals for their resignations. Cucu and Lupu resigned later that evening. Voronin accepted their resignations on 4 February. Finance Minister Mihai Manoli resigned on 6 February, stating, "In the current circumstances, which do not depend on me and on which I have no influence, I feel obliged to submit my request to resign from the post of finance minister." He was the last remaining reformer in the cabinet. The same day, Ciobanu was recalled from his post. An official notice on his removal has not been received in Washington, D.C.

The Anticorruption Council explained in a statement that Cucu had sent a letter to the U.S. Department of Commerce with a request to reduce import duties on metals from Ribnita Steel Plant in Transdniester from 232 percent to 10 percent and obtain the status of "market economy" for Moldova. The tariff was introduced last year and caused exports to drop by 30 percent, according to Moldovan officials. The steel plant's exports to the U.S. and other countries totaled $108 million last year, providing more than half of the breakaway region's budget. Unrecognized separatists control the state-owned plant. The council said that, if passed, the measure would inflict moral damage to Moldova and would tarnish the image of Moldovan goods on the American market, Infotag reported.

Intercon sources report that a letter was indeed sent from Cucu, but that it circumvented the Moldovan Embassy and the Foreign Affairs Ministry. After Ciobanu was notified of the letter by the U.S. Department of Commerce, the ambassador worked to halt the request to the benefit of his government. In a U.S. government document, it is clear that after Ciobanu discussed Cucu's letter with Prime Minister Vasile Tarlev, the government sent another letter to the U.S. Department of Commerce requesting that the "market economy" status apply only to territories controlled by the legal authorities of Moldova. Members of the former cabinet defended Ciobanu, saying that the ambassador had been framed for his frank opposition to Transdniestrian steel-bar exports to the U.S. Representatives from the Ribnita Steel Plant also expressed the same reaction. It appears that the current authorities do not need an ambassador with a "pro-American attitude."

Tarlev said on 6 February that Moldova "has lost nothing" with the departure from the cabinet of the only two ministers who were not members of the Party of Moldovan Communists, RFE/RL's Chisinau bureau reported. "I do not see any problems or disturbances. There are no reasons to exaggerate the situation. These changes will not have a negative impact on the government activity." He said there would be "no problem" in replacing them with loyal Communist members. The Communist Party swept back to power in Moldova in a landslide election victory just under a year ago. The Communist Party played on a sense of political disorder and the country's extreme poverty during their election campaign. Following the election, the Communist Party pledged to turn the economy around in one year.

The retention of Manoli and Cucu, who held key positions in the previous reformist government, was seen as a key to convince foreign lenders that the new government would press on with liberal economic reforms, Reuters reported. Nikolae Chirtoaca, director of an independent think tank, Euroatlantic Center, told Reuters that the Communist Party "decided to put their own people into all key a desire to control financial flows." He pointed out, however, that this would not be enough to alleviate the economic crisis in Moldova. Prior to his resignation, Manoli told the cabinet that state budget revenues reached only 87 percent of the target for 2001. He has criticized government and parliamentary initiatives to grant corporate tax breaks. Manoli said the government will have to spend 75 percent of the total 2002 budget revenues of $278.3 million to pay foreign debts unless it manages to unlock foreign loans. Moldova will have to pay $200 million on its foreign debts this year, including repaying principal on $75 million of Eurobonds in June. The International Monetary Fund (IMF) froze its $142 million, three-year loan program in 2001 due to the slow pace of reforms. The fund said on 5 February it was prepared to help Moldova but wanted more clarity about its economic reform plans before releasing new funds. Moldova achieved 6 percent growth in gross national product and a rise in industrial and agricultural output. The IMF and World Bank are awaiting verification that the growth was truly realized. If the growth is real, it is due to the measures implemented by the reformist ministers, who were so recently forced to resign. The loss of the reformist ministers will certainly factor into international lenders' decisions to release new funds or work to restructure the repayment of debt.

In addition to the nation's economic problems, the Communist government has been struggling to establish normal relations with the breakaway region of Transdniester. The government of Transdniester is seeking independence from Moldova. Negotiations with the leadership of Transdniester have been called off and resumed several times since the new government came to power. Moldova accuses Transdniester of smuggling, being a haven for organized crime, and robbing the state budget by not paying taxes on exports. The Soviets built factories in Transdniester, which now exports clothing, steel, water pumps, and motors to Russia and the West. The rest of Moldova has little industry, and the nation is suffering from poverty, relying heavily on agriculture, AP reported. The Ribnita Steel Plant was renovated with German equipment in the final years of the Soviet Union, making it one of the most modern factories. Due to good management, the plant reinvested its profits and is extremely productive. It appears that Moldova's next pressure point on the enclave will be the very power that fuels its production.

On 1 February, Russian gas monopoly Gazprom, the main supplier of gas to Moldova, cut off gas supplies to Transdniester for failure to pay consumption debts. Ivan Pindak, financial manager of Ribnita Steel Plant, was surprised by lack of fuel despite the transfer of payments for consumption volumes. Some experts believe the cut-off was forged during a meeting between Moldovan President Vladimir Voronin and Russian Deputy Foreign Minister Vyacheslav Trubnikov, who formerly served as the head of the Foreign Intelligence Service (SVR).

It appears that the Communist Party is starting to act the way that many analysts feared after it came to power in late February 2001. It is likely that the Communists will blame economic difficulties on Manoli, Cucu, and the previous reformist government. It is also becoming clear that the party forced the ministers to resign in order to gain control of the real purse strings of the nation. The question remains as to whether the party will be able to implement the necessary reforms needed to release foreign lending and alleviate the nation's poverty -- if this is even an interest of the current government. What is clear is that Moldova is working to establish control over the breakaway region. It seems that Moldova will use its renewed relations with Russia, the Communist Party, and Russian-controlled businesses to ruthlessly hold on to its power at the cost of an impoverished nation. (PMJ, JMR)