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Romania: Miners' Strike Challenges Economic Reform Program

Prague, 22 January 1999 (RFE/RL) -- Violent clashes yesterday between Romanian coal miners and police trying to keep them from Bucharest have raised the stakes in the strikers' attempts to keep mines open and get pay raises. From the viewpoint of Prime Minister Radu Vasile's government, the crisis has become a serious challenge not only to national security, but also to the country's entire economic reform program.

Correspondents say villagers have been cheering for strike leader Miron Cozma and his 10,000 miners during their advance on Bucharest. For Cozma, victory could rest on whether his movement can pick up support from workers in other industrial sectors.

Romanian President Emil Constantinescu is trying to discourage such developments. He says the strike is "no longer a protest, but rather a brutal attack" on state authority. He said the government must negotiate, but added, "reforms cannot be negotiated." With more than 100 police reportedly injured in yesterday's clashes, Bucharest has cleared the way to impose a state of emergency.

The crisis is the worst to hit Romania since Cozma's miners set fire to government headquarters and forced the resignation of Prime Minister Petre Roman in 1991. Political analysts say events show how organized labor can spawn a populist backlash against reforms -- not just in Romania, but in countries like Bulgaria, Ukraine, and Russia.

Reforms endorsed by international institutions like the World Bank are based on the premise that private investment fosters economic growth. That isn't reassuring for miners. Few investors are willing to put money into Eastern Europe's long neglected coal industries.

Enormous funds are needed for new equipment. Mine closures and massive layoffs are also necessary in order to reduce inefficiency and increase competitiveness. Even then, with the region turning more to natural gas, oil, and nuclear power to meet its energy needs, there is no guarantee that the low-grade brown coal found across much of Eastern Europe can bring profit.

The United Nations Economic Commission for Europe notes that Europe's only successfully privatized coal industry is in the United Kingdom. The high productivity achieved there has come only at great social expense. Entire communities were devastated economically by the layoffs of state miners in the mid-1980s under then-Prime Minister Margaret Thatcher.

And countries like Romania, Russia, Ukraine, and Bulgaria cannot afford the funds needed to retrain hundreds of thousands of workers for jobs outside mines. The UN's Economic Commission for Europe, in a 1996 report, concluded Eastern governments "may not be able to entirely escape the responsibility to support the coal industry."

The World Bank has issued loans to try to ease the social cost in some countries. But corruption and a lack of commitment to reform have forced the World Bank to admit that much of the money has been wasted.

Ukraine's parliament is now considering a new World Bank loan agreement for restructuring its coal sector. Kyiv received the first $150 million installment for the project in December 1996. But a second tranche of $50 million has been delayed since 1997 because of Kyiv's failure to implement basic reform legislation.

Under the new proposal, about $40 million of World Bank funds would be earmarked to help develop small and medium-sized businesses in mining regions so that unemployed miners might find other work. About $30 million would be disbursed to Ukrainian municipalities as the burden of paying for the coal sector's social infrastructure is transferred to local governments.

But so far, Kyiv has done little else to foster small and medium-sized businesses. Taxes and other laws treat the interests of regional monopolists more favorably than new firms. Critics say it is a climate that protects those with links to the former Communist ruling elite and discourages others from becoming their competitors. World Bank officials in Kyiv have said they will closely scrutinize Ukrainian proposals before issuing any new loans.

Even before 1989, most mines in Ukraine and Russia were deemed to be uneconomic. The European Bank for Reconstruction and Development (EBRD), in its country report for Russia last year, admitted that reforms there had merely exacerbated a sector already plagued by corruption and inefficiency.

Russia's coal sector is a worst-case scenario. The closure of unprofitable mines put 240,000 Russian miners out of work by early last year. That does not include workers at another 140 mines slated for closure.

At mines where work continues, barter trade has become the norm for coal deliveries. The EBRD says that by 1997, only 15 percent of Russian coal deliveries were paid for in cash. Government officials and local workers alike say barter trade has allowed organized criminal groups to take enormous cuts from coal sales.

That has left thousands of miners without wages and basic safety measures. Mine managers say they have had no funds for restructuring or modernizing, and they cannot even consider the cost of retraining so many laid off workers.

Even a $500 million World Bank loan, paid to Russia in 1996 in return for promised coal sector reforms, has had little effect on the industry. The funds were to have been disbursed to Russian mines through the state coal industry's administrative body, Rosugol. But the American journal Business Week reported that only about $6 million was used for the intended purpose of retraining miners and funding a social support system.

The World Bank's Moscow office said the rest was "misused by intermediaries" and held for a time by Russian commercial banks. Business Week says parts of the loan helped finance President Boris Yeltsin's 1996 reelection campaign.

The World Bank has since approved a new $750 million loan for Russian coal reforms. But this time, it insisted that intermediaries like Rosugol be excluded from distributing the funds. It also has pressed for further demonopolization.

Moscow responded by dismantling Rosugol and putting the Fuel and Energy Ministry in charge of distributing World Bank funds to coal mines. Two new departments have been created within the ministry -- one for closing mines and one for the social protection of miners.

In Bulgaria, Prime Minister Ivan Kostov's government has long considered labor protests as a potential threat to its reform program. Industrial unrest came to a peak in early 1998, about a half a year after Kostov took office. But the wave of strikes, which included miners as well as oil refinery, railway and steel workers, has not been strong enough to overwhelm the government.

The Economist Intelligence Unit predicts that industrial unrest will not develop into a political challenge to Kostov. It says the unions seem to have accepted the argument that wage rises are only possible in return for staff cuts. There is broad consensus in Bulgaria that the government has little alternative but to continue the present reform course.

In Romania, the government hopes Cozma's protests will not become generalized across sectors and make a national impact.

Conventional wisdom says they will not. Cozma and his miners have been unpopular across the country since they attacked anti-Communist leaders during Romania's bloody revolution 10 years ago. Miners also are the targets of some resentment because their salaries already are more than twice the national average.

Nevertheless, radical restructuring is planned for Romania's energy and steel sectors. With strong labor unions there, no one is certain about the outcome of events. It was the rampage of Jiu Valley miners in 1991 that brought down Petre Roman, the last prime minister who seemed capable of carrying out reforms.

If Prime Minister Vasile can overcome the current crisis, he will have passed the most serious political barrier on the reform course. It will be the first major victory for post-Communist reform in a country that has, so far, not had the political will to implement significant market reforms.

(First of Two Features on Coal Mine Sectors and Reform.)