Caucasus Report: September 22, 1998

New Round of Minsk Group Consultations. Last week the three co-chairmen of the OSCE Minsk Group, including Donald Kaiser, who recently replaced Lynn Pascoe as the U.S. representative, travelled to Baku, Yerevan, and Stepanakert with the objective, according to Armenian Foreign Ministry spokesman Arsen Gasparian, of "discussing the elements of the settlement with Azerbaijan, Armenia, and Nagorno-Karabakh (NKR) and trying to bring the positions of the conflict parties closer."

It was the co-chairs' first journey to the region since mid-May (see "RFE/RL Caucasus Report," Vol. 1, No. 12, 19 May, 1998). On that occasion, few details of their talks were disclosed. This time, in contrast, the meetings with all three leaderships appear to give grounds for cautious optimism. In Baku, Azerbaijani President Heidar Aliyev expressed regret at the months-long hiatus in the negotiations, which he said was in the interest of neither Azerbaijan nor Armenia. Speaking at the TRACECA conference in Baku one week earlier, Aliyev had called for establishing "an atmosphere of mutual trust" between Azerbaijan and Armenia.

Azerbaijani presidential foreign policy advisor Vafa Gulu-zade told Turan before the co-chairs' arrival in Baku that he doubted that they would make any new proposals, and that even if they did, "Azerbaijan's position remains the same." But speaking to journalists in Yerevan on16 September, after what he termed "fruitful and productive" talks with President Robert Kocharian and Foreign Minister Vartan Oskanian, French co-chairman Georges Vaugier said that he and his colleagues did, in fact, offer new proposals for resolving the conflict, although he declined to divulge specific details of those proposals. Vaugier further hinted that Azerbaijan may be prepared to modify its previous insistence that the most it can offer Nagorno-Karabakh is the "highest possible" degree of autonomy within Azerbaijan. (In recent months Armenian officials have suggested that the Dayton Agreement might constitute an acceptable blueprint for resolving the conflict, or that the status of Andorra, which is nominally headed by the French President and a Spanish bishop, could be applied to the Nagorno-Karabakh Republic.)

NKR foreign minister Naira Melkumian confirmed in Stepanakert on 17 September that the OSCE negotiators had indeed brought new proposals, expressing satisfaction at the "positive changes" in their position. Specifically, she noted that the co-chairmen "seemed to receive with greater understanding" Stepanakert's insistence on a package, as opposed to a phased, settlement of the conflict.

Whether last week's mood of optimism can be parlayed into substantive progress towards resolving the conflict will, however, depend largely on the size of the margin by which Azerbaijani President Heidar Aliyev is reelected next month, and how free and democratic that poll proves to be. (The constitution of Azerbaijan requires a second round of voting if no candidate receives two-thirds of the votes cast in the first round.) If the voting is accompanied by egregious procedural violations, as was the case during the 1995 parliamentary elections, the embattled opposition is likely to redouble its attacks on Aliev, who will consequently be less inclined to agree to any substantive concessions over the future status of the NKR. (Liz Fuller)

Supporters Launch Last-Minute Bid To Prevent Ioseliani's Imprisonment. Delegates to the 12 September congress of the paramilitary-organization-turned-political party Mkhedrioni (see "RFE/RL Caucasus Report," Vol.1, No, 29, 15 September 1998) pledged to collect signatures to a petition calling for the release of Mkhedrioni's 73-year-old leader, Djaba Ioseliani. Sentencing is due later this month in the trial of Ioseliani and other members of Mkhedrioni accused of political murders, the failed attempt to assassinate Eduard Shevardnadze in August 1995, and of planning a coup d'etat. The prosecution has called for a15-year sentence for Ioseliani and for him to pay compensation for the destruction wreaked by his subordinates on villages in western Georgia in 1992-1993.

Ioseliani's lawyers had earlier argued that the entire case against him is invalid, given that at the time of his arrest in November 1995, he was still a deputy in the Georgian parliament, and thus theoretically enjoyed immunity from prosecution. But Deputy Prosecutor-General Revaz Kipiani argued that Ioseliani's immunity did not extend to his suspected involvement in the 1995 car bomb attack on Shevardnadze. And a second procuracy official argued that the public campaign for clemency for Ioseliani is tantamount to an attempt to exert pressure on the court and influence the course of justice. Ioseliani's supporters still intend to propose him as a candidate for the 1999 Georgian parliamentary elections, according to "Izvestiya." (Liz Fuller)

IMF Gives Georgia The Benefit Of The Doubt. Georgia received approval for the final year of its three-year subsidized loan from the International Monetary Fund (IMF) this summer despite fund concerns over Georgia's accumulation of unpaid foreign debts. The decision by the IMF's Board of Executive Directors -- the 24 officials representing all 182-member nations who conduct the fund's daily business -- to approve the loan of $74 million was announced in late July. But Georgia's annual review conducted by the board at the same time was only made public on 11 September. In that review, the board warned Georgian officials that the loan approval was made on the presumption that Tbilisi would reach a rescheduling agreement with Turkmenistan on payments falling due during 1998 and 1999. Georgia's debts to Ashgabat for supplies of natural gas total approximately $400 million.

The directors said they were giving Georgia the benefit of the doubt because despite the country's weak external position, it had completed debt rescheduling agreements on pre-1995 bilateral debt with all of its creditors. But the directors also cautioned Georgia that because of its "onerous" external debt burden, it should not attempt to borrow on international capital markets, should work on increasing domestic savings and must continue to strengthen the nation's ability to service its debt over the medium term.

The review included a note from the directors that despite important strides Georgia has made in implementing economic reforms and stabilizing its economy, it still faces "daunting economic challenges that need attention in the short and long run."

The IMF directors said Georgia must strengthen its fiscal adjustment -- efforts to balance the budget -- mobilize additional tax revenues and continue to work toward broadening the tax base while establishing an overall fairer tax system.

The directors welcomed Georgia's intention to eliminate all outstanding government payment arrears by the end of this year and to avoid accumulating new arrears. The government has also agreed to cut tax arrears, improve targeting of the social safety net and increase funds for health and education.

The directors said Georgia's ability to stabilize the nominal exchange rate has helped reduced inflation from hyperinflation levels in 1994 to single-digit levels in 1997-98.

Georgia was praised for taking steps to tighten banking regulations and supervision, noting that "resolute action" by banking supervisors is required to build a sound banking system.

The IMF directors also stressed the importance of Georgia pushing ahead on privatization of urban and industrial land, saying that the government's divestment strategy for the energy and other sectors of the economy were steps in the right direction.

The directors praised in particular the privatization of agricultural land and enterprises, coupled with banking, energy, and legal sector reform, which they said had underpinned the authorities' effort to build a market economy.

In a background report prepared by the IMF staff, the fund said Georgia's privatization of medium and large-scale enterprises had accelerated in the second half of 1997 and that the government had established a competitive market for electricity generation and distribution. (Robert Lyle)

Quotes of the Week. "A man cannot express his own opinion in your democratic Georgia." -- One of the Meskhetians who staged a demonstration outside the state chancellery in Tbilisi on 16 September to demand an audience with President Shevardnadze, quoted by Caucasus Press.

"Shevardnadze's life has become like a James Bond movie" -- Unidentified western diplomat, quoted by Reuters, 15 September.

"Azerbaijan is an independent state with its own laws and leader, and I will never allow chaos." -- Azerbaijani President Heidar Aliev, quoted by "Hurriyet," 17 September.

"We don't want freedom in a jail cell." -- Placard carried by one of the participants in the opposition protest march in Baku on 20 September, quoted by Reuters.