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Newsline - July 16, 1997


Following former First Deputy Finance Minister Andrei Vavilov's 15 July press conference, government officials avoided escalating Russia's largest-ever banking scandal (see "RFE/RL Newsline," 14 and 15 July 1997). Besides denying all personal wrongdoing, Vavilov said he had passed documents to the Procurator-General's Office concerning suspect deals that involved other Russian banks, RFE/RL's Moscow bureau reported. Analysts interpreted that statement as a warning that Vavilov has compromising material on various influential companies and political figures. Speaking on Ekho Moskvy later that day, Central Bank First Deputy Chairman Sergei Aleksashenko noted that Central Bank head Sergei Dubinin had not accused Vavilov of corruption but only of approving bank deals that "brought harm to the state budget." Spokesman Igor Shabdurasulov said the government will not take any action on the scandal pending the completion of the investigation by the Procurator-General's Office.


The press service of Unikombank, which is implicated in the recent fraud allegations, on 15 July claimed that an earlier statement reportedly issued by the bank had been falsified, according to "Kommersant-Daily" on 16 July. Unikombank still denies all wrongdoing but disavowed sharp criticism toward Central Bank chairman Dubinin contained in the earlier statement.


Foreign Ministry spokesman Gennadii Tarasov says that while Russia opposes NATO membership for the Baltic states, Moscow "not only does not oppose but would support the entry of Baltic countries into the European Union," ITAR-TASS reported on 15 July. The European Commission on 16 July officially recommended that the EU open membership talks with six countries, including Estonia (see "RFE/RL Newsline," 11 July 1997). Meanwhile, Foreign Minister Yevgenii Primakov and his German counterpart, Klaus Kinkel, met in Moscow on 15 July and discussed the upcoming first meeting of the Russia-NATO permanent joint council, Russian and Western news agencies reported. The recent operation against accused war criminals in Bosnia will be on the agenda at that meeting.


Repairs on the damaged "spektr" module of the "Mir" space station have been postponed to 24 or 25 July, according to Russian media. The reason for the delay is the health of "Mir" commander Vasilii Tsibliev, who has complained of heart trouble. He is currently taking medication, and his condition is being monitored by Russia's mission control. Medical specialists in Russia said Tsibliev's health problems were likely caused by stress from the series of misfortunes that have occurred since a cargo ship crashed with "Mir" on 25 June. They also said that Tsibliev should not put on a space suit at the moment. Michael Foale, the U.S. astronaut aboard "Mir," is currently being trained to perform the work to have been carried out by Tsibliev. NASA officials on 16 July agreed that Foale can substitute for his Russian colleague.


The heads of the Russian and Chechen state security services, Nikolai Kovalev and Abu Movsaev, met in the North Caucasian town of Yessentuki on 15 July and signed a provisional cooperation agreement, Russian media reported. The two services will work together to combat terrorism, sabotage, the recruitment of mercenaries, hostage-taking, and arms- and drug-trafficking. According to Russian Security Council Deputy Secretary Boris Agapov, cooperation will initially be confined to the exchange of information, but the agreement also provides for the participation of Russian operatives in joint operations in Chechnya, Interfax reported, citing Ekho Moskvy.


A 14 July Constitutional Court ruling is unlikely to settle the problematic relations between Yamal-Nenets and Khanty-Mansi Autonomous Okrugs and Tyumen Oblast, of which both okrugs are part, according to "Kommersant-Daily" on 16 July. Yamal-Nenets and Khanty-Mansi did not participate in the December/January gubernatorial election in Tyumen and disagree on many budgetary matters, as well as on how natural resources extracted from the okrugs' territory should be divided. (Khanty-Mansi contains nearly two-thirds of Russian oil reserves, and Yamal-Nenets contains nearly 90% of the country's gas reserves.) The Constitutional Court found that the jurisdiction of Tyumen Oblast extends to the okrugs' territory. But it said questions about the division of natural resources were outside its competence. The decision may prompt the okrugs to begin formal efforts to secede from Tyumen, "Kommersant-Daily" commented.


Ivan Sklyarov says Moscow Mayor Yurii Luzhkov helped his successful gubernatorial campaign more than anyone else, RFE/RL's correspondent in Nizhnii Novgorod reported on 15 July. Sklyarov also thanked the Our Home Is Russia movement and Yabloko and expressed appreciation for a telephone conversation with President Boris Yeltsin and a pre-election visit to the oblast by Prime Minister Viktor Chernomyrdin. In contrast, Sklyarov said First Deputy Prime Minister and former Governor Boris Nemtsov had come to campaign in Nizhnii Novgorod only when it was already clear that Sklyarov would win the runoff election (see "RFE/RL Newsline," 10 and 14 July 1997). Sklyarov added that he did not understand why Nemtsov is credited with initiating the reforms in Nizhnii Novgorod. As mayor of Nizhnii, Sklyarov said, he had played as large a role in launching the reforms as Nemtsov.


Former Security Council Secretary Aleksandr Lebed arrived in Irkutsk on 15 July to campaign for gubernatorial candidate Ivan Shchadov, director of the huge coal enterprise Vossibugol, RFE/RL's Moscow bureau reported. Of the nine registered candidates, Shchadov ranks third in opinion polls, behind Irkutsk Mayor Boris Govorin and Sergei Levchenko, the leader of the Communist Party branch in the oblast. The popular former Governor Yurii Nozhikov, who resigned in April, formally endorsed Govorin in a 15 July radio address. Meanwhile, a group of Communist State Duma deputies and assistants have flown to Irkutsk from Nizhnii Novgorod, where they were recently campaigning for unsuccessful gubernatorial candidate Gennadii Khodyrev. Communist Party leader Gennadii Zyuganov is expected in Irkutsk to campaign for Levchenko several days before the 27 July election.


Deputy Prime Minister and former Samara Mayor Oleg Sysuev says the campaign to elect his successor was not an honest political battle, Russian news agencies reported on 15 July. Georgii Limanskii, deputy chairman of the Samara Oblast legislature and leader of the oblast branch of Aleksandr Lebed's Russian People's Republican Party, won the 13 July mayoral election with about 54 percent of the vote. Deputy Mayor Anatolii Afanasev, whom Sysuev had endorsed, gained 38 percent. Sysuev said the main weapon in the Samara campaign had been "big money and compromising materials." While noting that the "choice made by Samara residents must be respected," Sysuev urged the new mayor not to "play at populism and put the city on the brink of a catastrophe by the winter." Among other things, Limanskii has promised to lower the price of housing and municipal services to 1996 levels.


President Ruslan Aushev told ITAR-TASS on 15 July that his republic will receive "certain dividends" from the transit of Azerbaijan's Caspian oil through the18 km stretch of the Baku-Grozny-Tikhoretsk pipeline that crosses Ingushetia. Aushev said the largest pumping station is located in Ingushetia. In an interview published in "Nezavisimaya gazeta" on 9 July, the chairman of the government of Dagestan, Abdurazak Mirzabekov, argued that "if some territories of the Russian Federation claim...payment for [use of] the pipeline crossing their territory, then it will be perfectly fair for Dagestan to receive adequate payment." The length of the Chechen and Dagestani sections of the pipeline is 150 km and 270 km, respectively.


Akhsarbek Galazov sent a telegram to Russian President Yeltsin on 15 July saying Ingush President Ruslan Aushev's request to impose direct presidential rule on North Ossetia's disputed Prigorodnyi Raion was "interference in North Ossetia's internal affairs," Russian media reported. Aushev had sent Yeltsin a telegram the previous day asking him to take measures to defuse growing tensions in the region. Galazov termed Aushev's telegram "an attempt to destabilize the situation" and said his leadership is doing everything in its power to restore peace and enable Ingush refugees to return to their homes. Galazov has also invited all North Caucasian leaders to a conference in Vladikavkaz on 25 July to discuss regional security and fighting crime, according to "Nezavisimaya gazeta" on 16 July.


Commenting on the proposal to set up a trilateral inter-government commission to investigate alleged Russian arms shipments to Armenia and Azerbaijan, Vazgen Sargsian said "Let them come and convince themselves that Armenia got less arms from Russia than Azerbaijan did," according to Noyan Tapan on 15 July. That statement is further implicit confirmation on Sargsian's part that Armenia received weapons from Moscow. Addressing students in Yerevan four months ago, Sargsian had boasted that over the past two years Armenia had doubled its military strength at no cost to the national budget. Greeting Greek Defense Minister Apostolos Tsohatzopoulos, who arrived in Yerevan on 15 July, Sargsian said that military-technical cooperation between Armenia, Greece, and Russia was "beneficial". This is the second Greek military delegation to visit Armenia within two months.


Former Russian Security Council Secretary Lebed has addressed an open letter to the three co-chairmen of the Organization for Security and Europe's Minsk Group warning that the attempt to resolve the Karabakh conflict by observing the inviolability of Azerbaijan's territorial integrity will inevitably lead to new bloodshed, Noyan Tapan reported on 15 July. Lebed said that if hostilities resumed, there would be a real danger of Russia or Turkey becoming involved. He advocated "seeking mutually acceptable decisions on the basis of international law," citing the example of Chechnya. Meanwhile, Turkish Deputy Prime Minister Bulent Ecevit has proposed in a radio broadcast that Armenia cede its southern Zangezour region to Azerbaijan to create a land bridge uniting Azerbaijan with its exclave of Nakhichevan. In return, he said, Armenia would receive unspecified compensation, according to the Istanbul-based Armenian newspaper "Marmara," cited by Asbarez on 15 July.


The exchange of 100 prisoners, which is part of an agreement reached shortly before the 27 June signing of the Tajik National Reconciliation Accord, failed to take place on 15 July, as scheduled, according to RFE/RL correspondents in Dushanbe. The Tajik government cited "technical reasons" for the deal, saying the exchange of 50 prisoners each by the government and United Tajik Opposition would have to take place on 18 or 19 July. UTO leader Said Abdullo Nuri on 13 July sent a letter to UN special envoy to Tajikistan Gerd Merrem and the foreign ministers of Russia and Iran asking them to use their influence as guarantors of the peace process to ensure the government honors its commitments. Nuri said failure to adhere to agreements would call into question the future work of the government-UTO reconciliation commission.


Askar Akayev met with U.S. Vice President Al Gore on 15 July, according to RFE/RL correspondents in Washington. Gore expressed the U.S.'s approval of Kyrgyz economic and political reforms and discussed aid programs to Kyrgyzstan and regional security in Central Asia. Akayev also met with World Bank President James Wolfensohn to discuss Kyrgyzstan's use of a $264 million loan for domestic projects. The previous day, Akayev had held talks with members of the U.S. State Department, including Undersecretary of State Thomas Pickering, who urged him to continue on the path toward democracy and protect human rights. They also said the U.S. hopes to further strengthen bilateral ties, especially military ones, through NATO's Partnership for Peace program. Akayev attended a ceremony at the U.S. Export-Import Bank marking the signing of an agreement that provides for the financing of U.S. exports to Kyrgyzstan.


Workers at the Stepanogorsk Uranium Producing Plant in Akmola Oblast staged a strike on 15 July to protest the fact they have not received wages in five months, RFE/RL corespondents reported. They also demanded to see detailed records of sales. In Kokshetau, some 1,000 citizens took to the streets to demand the payment of overdue wages and pensions and a cut in housing utility costs. They also want the government to rescind a decree issued earlier this year merging Kokshetau Oblast with neighboring Akmola Oblast. Meanwhile, ITAR-TASS reported on 16 July that pensioners in the city of Saran are requesting coffins instead of their pension arrears.


The new law on languages, which was published on 16 July, states that Kazakh remains the state language but that Russian has "equal status" with Kazakh at "state-owned organizations and bodies of local government," ITAR-TASS reported. Instruction at secondary and vocational schools as well as at institutes of higher education will be provided in both Kazakh and Russian, but at least half of television programming must be in Kazakh. Learning the Kazakh language remains the "duty of every Kazakh citizen," the law states.


The European Commission has officially recommend that six countries be invited for talks on the first wave of EU expansion: Poland, the Czech Republic, Hungary, Slovenia, Estonia, and Cyprus. Commission President Jacques Santer presented the recommendation to the European Parliament on 16 July. EU leaders are due to make a final decision on which countries will be invited to early membership talks at a summit in Luxembourg in December. Also on 15 July, Danish Foreign Minister Niels Helveg Petersen said Denmark wants the EU to start entry talks with all East European candidates at the same time.


Jaroslaw Pietras, deputy head in Poland's government committee overseeing the EU membership drive, said his country feels like a business that has "received the approval of its auditors." Hungarian Foreign Ministry spokesman Gabor Horvath on 15 July told journalists in Budapest that the EU Commission decision is an indication that Hungary has met the criteria for accession. In Tallinn, Foreign Ministry spokesperson Ehtel Halliste said Estonia is very happy about the decision. Czech Foreign Ministry spokesman Vit Kurfuerst said his country is ready for "difficult" negotiations leading to EU membership. Meanwhile, the Slovenian parliament on 15 July overwhelmingly ratified an association agreement with the EU intended to speed the country's entry into the union. Romanian officials said any enlargement of the EU in waves would be "artificial and discriminatory."


Alyaksandr Lukashenka on 15 July started a second round of talks with opposition members of the parliament under the auspices of the EU, ITAR-TASS reported. The EU has called on Lukashenka to declare the November 1996 referendum void and to restore the democratically elected parliament that was dissolved after that vote. Meanwhile, Lukashenka on 15 July signed a decree on new appointments, Interfax reported. Vladimir Rusakevich, formerly deputy prime minister responsible for social affairs, was appointed first deputy head of the presidential administration. Vladimir Zametalin was appointed deputy prime minister. Until now, he was State Press Committee chairman.


Valery Pustovoitenko, who has been nominated by President Leonid Kuchma as prime minister, told Interfax on 15 July that the future premier must be able to ensure political agreement between the government and parliament. "Without agreement with the parliament, laws cannot be passed and economic problems cannot be solved," Pustovoitenko said. He also said that if he becomes the prime minister, he "will have to organize the drafting of tax laws in a way that will allow us to shape a 1998 budget to the benefit of the people, the state, and the entrepreneurs." Pustovoitenko said the policy of radical economic reform, announced by the president in 1994, will not be changed. The parliament is scheduled to discuss his candidacy on 16 July.


Lawmakers on 15 July rejected a motion by left-wing factions to ban NATO training on Ukrainian territory later this summer, dpa and ITAR-TASS reported. The motion was proposed by the Communist, Socialist, and Agrarian factions. The Sea Breeze exercises are scheduled at the end of August off Ukraine's Crimean peninsula. Some 20 ships and 300 marines from the U.S., Ukraine, Bulgaria, Turkey, Greece, Italy, Romania, and Georgia are expected to take part. The left-wing factions claimed that the exercises, as well as an earlier training exercise this month, were unconstitutional. Foreign Minister Hennady Udovenko assured deputies that the exercises did not run counter to the Ukrainian Constitution. He said the fact that Kyiv has not applied to join NATO does not mean it should not cooperate with the alliance.


A poll conducted by the Kyiv-based Social Monitoring Center in May shows that some 44 percent of Ukrainians support their country's joining the Russian-Belarusian union, Interfax reported on 15 July. The poll was conducted among 2,007 Ukrainian citizens over the age of 15 and representing all regions of the country. Of the respondents, 32 percent said they were against Ukraine joining the Russian-Belarusian union, while 24 percent said they were undecided.


Estonian security forces are investigating the alleged sale of two KGB files reported to contain information on the links of two Estonian parliamentary deputies to the former communist secret service, BNS reported on 14 July. Clock collector Mati Zerel claims to have obtained the two files at a Russian immigrant's antique shop in the U.S. and to have offered them for sale in a Tallinn daily newspaper. Zerel also claimed that one of the implicated deputies bought both files from him. Under Estonian law, persons in possession of KGB files are obliged to hand them over to the security forces.


The Tallinn police have arrested a 35-year-old Estonian businessman accused of threatening to carry out terrorist acts in Latvia under the codename "Viktor," BNS and ETA reported on 15 July. The accused is suspected of threatening terrorist attacks on various buildings in the Latvian capital, including department stores and hotels, and of blackmail. In May, some 200 grams of TNT were found in a Riga store after "Viktor" had warned that a bomb had been placed there. He was detained on 11 July while attempting to cross the Latvian-Estonian border in possession of voice transformation equipment. Negotiations on his extradition to Latvia are under way.


The case against alleged war criminal Alexandras Lileikis has been suspended indefinitely because of the accused's failing health, Reuters reported on 15 July. Ninety-year-old Lileikis is charged with genocide in Nazi-occupied Lithuania in his capacity as head of the Vilnius branch of the security police. He returned to Lithuania last year after he was stripped of his U.S. citizenship. A spokesman for the Prosecutor-General's Office said a medical commission had determined that investigation procedures had to be halted. He did not say whether they would be resumed in the future.


The worst of the flooding in Poland, the Czech Republic, and Slovakia seems to be over, according to media throughout the region. A spokesman for the Polish Red Cross told journalists on 15 July that many people are destitute after the flooding and that the organization has sent over 500 tons of food, clothing, and water to affected regions. Polish Finance Minister Marek Belka said that the government will need to borrow hundreds of millions of dollars for reconstruction and that a temporary additional tax may have to be imposed on Poles. In the Czech Republic, people have donated some $3.5 million for flood victims. The Czech army says more than 30,000 people were rescued in all by its helicopters and other means. More than 80 people are reported to have lost their lives in Poland and the Czech Republic. Some areas in both countries are still experiencing rising waters. Slovak President Michal Kovac on 15 July visited the village of Brodske, on the lower part of the Morava River, which is threatened with flooding, as flood waters move downstream along the river.


The Supreme Court on 15 July upheld the validity of the 25 May referendum, which approved the country's first post-communist constitution, PAP reported. Opponents of the constitution had challenged the outcome because turnout for the referendum was only 42 percent. Under Polish law, a plebiscite generally is valid only when more than 50 percent of eligible voters take part. The Supreme Court ruled that the requirement did not apply to the referendum on the constitution because it took place under a separate regulation that did not specify turnout.


Michal Kovac told CTK on 15 July that the U.S. has given "clear and definite" reasons why Slovakia was not invited to join NATO and that the Slovak government should think about them. The president was responding to a speech by U.S. Ambassador Ralph Johnson saying his government had not supported the entry of Slovakia into NATO because of unsatisfactory and anti-democratic developments in two areas--the intolerant and unjust treatment of people whose opinions differ from those of the government and the growing centralization of power (see "RFE/RL Newsline," 15 July 1997). Ivan Gasparovic, chairman of the Slovak parliament, told Slovak Radio on 15 July that "it should be seriously considered whether it is possible for a foreign diplomat in Slovakia to speak about things in [such] a way." He argued that "these are [only] his opinions."


Lawmakers on 15 July adopted a declaration backing the country's accession to NATO. All 312 deputies present in the 386-seat legislature voted in favor and none abstained. Prime Minister Gyula Horn reaffirmed the government's intention to hold a referendum on joining NATO by the end of November. In other developments, the Prosecutor-General's office on 15 July ordered the Budapest Military Prosecutor's Office to press charges against several individuals involved in so-called "Operation Birch Tree," overruling the military prosecutor's decision to close the investigation on grounds of insufficient evidence (see "RFE/RL Newsline," 12 June 1997).


Gyoergy Giczy, the chairman of the Christian Democratic Party (KDPN) and two other members of the KDPN faction in the Hungarian parliament, voluntarily left the faction on 15 July. Earlier that day, the faction had voted to expel three of Giczy's supporters. Faction leader Tamas Isepy said the group wished to distance itself from the policies of the party's national leadership. He said the three expelled members "share the burden of responsibility for the revocation of the KDNP membership in the European Union of Christian Democrats" (see "RFE/RL Newsline," 15 July 1997). The faction also voted to amend its charter, freeing itself from the obligation to follow policies laid out by the KDPN national leadership.


Italian officials said in Rome on 15 July that an international conference on Albania will take place on 31 July in the Italian capital. Representatives of individual countries and international organizations will participate in the gathering, which will prepare the agenda for an aid donors' conference in October. In Tirana, foreign diplomats and economists said that the IMF is in contact with those Albanian officials who are expected to form a new government shortly. The IMF is ready to send a delegation to Albania as soon as the security situation permits. It insists that all remaining pyramid schemes be closed down before it approves new loans. The Albanian authorities have been trying to convert the remaining pyramids into legitimate businesses to allow the companies to generate income that could be used to repay pyramid investors.


A grenade exploded on 16 July near the offices of international police monitors in Prijedor. It was the third such explosion in as many days following the funeral of Simo Drljaca, a former police chief of Prijedor and concentration camp commander killed by NATO troops on 10 July. Also on 16 June, a U.S. soldier was stabbed by a civilian in Kladanj. U.S. President Bill Clinton the previous day had warned the Bosnian Serbs that "it would be a grave mistake" for them to seek revenge for Drljaca's death and for the arrest and removal to The Hague of Milan Kovacevic, another indicted war criminal. In The Hague, spokesmen for the war crimes tribunal said that Kovacevic is undergoing medical observation to see if he is fit to stand trial. The spokesmen said Kovacevic is suffering from what they called "pathological problems."


Both houses of the federal parliament voted overwhelmingly on 15 July to elect Slobodan Milosevic as president of Yugoslavia for a four-year term (see "RFE/RL Newsline," 15 July 1997). The Belgrade opposition said the vote was a sham because Milosevic, who is currently Serbian president, was unopposed. In Novi Pazar, Muslim opposition leader Rasim Ljajic commented that the vote means the political and economic crises will continue. Observers note that Milosevic will now have to rewrite legislation if he wants to transform the hitherto ceremonial federal presidency into a real locus of political power at the expense of the Serbian presidency. It is unclear whether his enemies could seriously hope to win the powerful Serbian presidency in the September elections.


Kosovo's ethnic Albanian political parties have decided not to participate in the Serbian elections scheduled for September, an RFE/RL correspondent reported from Pristina on 14 July. The decision could seriously hurt the presidential candidacy of former Yugoslav Prime Minister Milan Panic, who hoped to put together an election coalition that would include the Albanians. In Belgrade, the opposition Serbian Renewal Movement said the Albanians' boycott plays into the hands of the governing Socialists, "Danas" reported on 16 July. The previous day, the same Belgrade daily cited a new poll suggesting that 99% of the Kosovo Albanians want only independence from Serbia.


Macedonian police on 15 July hauled down an Albanian flag flying over the Debar town council office building and replaced it with a Macedonian one. Mayor Kemal Xhafa then removed the Macedonian flag in line with a council decision. BETA reported later that day that the situation in Debar was peaceful and that the council remained in session. Elsewhere, Arben Xhaferi of the Democratic Party of Albanians said recent ethnic tensions in Macedonia suggest there will be no peace until the Albanians receive territorial autonomy (see "End Note," "RFE/RL Newsline," 15 July 1997). He charged that the Macedonian government has received help from Serbia in preparing for what Xhaferi called the current clamp down on the Albanians. His charges have not been independently substantiated.


The Montenegrin Ministry of Justice on 15 July confirmed the recent move by the anti-Milosevic wing of the governing Democratic Socialist Party to oust President Momir Bulatovic as party leader. The ministry added that Milica Pejanovic-Djurisic of the anti-Milosevic faction is now the party's legal chairman. Some observers wrote that Bulatovic, who is Milosevic's main ally in the tiny mountainous republic, has now completely lost the power struggle. On 16 July, security guards prevented him from entering the building where the Socialists' steering committee was meeting. The building also houses government offices.


The Sandzak-based Muslim National Council on 16 July sent a letter to all foreign diplomatic missions in Belgrade urging them to use their influence to persuade the Serbian authorities to end repression of the Sandzak Muslims. "The New York Times" reported on 16 July that France has balked at a proposed new mission to arrest indicted war criminals. The previous day, some 2,000 UN peacekeepers began their withdrawal from eastern Slavonia.


Several hundred people on 15 July demonstrated in Bucharest against the amended Education Law. The protest was organized by the main opposition formation, the Party of Social Democracy in Romania (PDSR). RFE/RL's Bucharest bureau reported that PDSR First Deputy Chairman Adrian Nastase said Romanians may soon be forced study their own history and geography in the Hungarian language. A PDSR delegation handed over a written protest, signed by PDSR chairman Ion Iliescu, to Education Minister Virgil Petrescu. Efforts by the PDSR to have the Senate debate the amendments the same day failed because the chamber's commission has not formulated its position on the issue. The amended law is to be enforced by government order and will be debated in the parliament in the fall.


Half of the judges serving on Romania's Supreme Court have challenged the treaty signed with Ukraine in an appeal to the Constitutional Court. RFE/RL's Bucharest bureau reported on 15 July that the 17 judges say the treaty violates the country's constitution, which stipulates its territory is "indivisible." A spokesman for the Constitutional Court told Reuters the challenge is likely to be rejected by the court because it was submitted after President Emil Constantinescu promulgated the treaty following ratification by the parliament.


Petru Lucinschi says "allegations about debates in Moldova on whether to join NATO or not are inventions," as the issue is not on any one's agenda. Summing up his visits to Madrid and Salzburg at a press conference in Chisinau on 15 July, Lucinschi said Moldova intends to remain a neutral country and all the states that recognized its sovereignty also recognized its "permanent neutrality." Lucinschi said "a kind of Marshal plan" was necessary to overcome discrepancies between the economically strong Western Europe and an Eastern Europe "still dominated by the chaos of transition, where people are losing confidence in a better life," BASA-press reported.


The Socialist Agrarian faction in the parliament, as well as leaders of the Russian, Ukrainian, Belarusian, and Bulgarian national minorities, have criticized the foundation of a private Slavic university in Chisinau (see "RFE/RL Newsline" 14 July 1997). They said the move aims at making university education in the Russian language dependent on students' ability to pay for it. In a message to President Lucinschi, they said he should "use his authority" to persuade Russia to finance the setting up of a state Slavic University in the academic year 1997-1998. The rector of the private university, Oleg Babenko, told BASA-press that the institution has been founded legally by "a group of persons who have nothing to do with political parties or ethnic organizations."


Agriculture Minister Ventseslav Varbanov says roads in Bulgaria are under police control in an effort to stop criminal groups from forcing peasants to sell grain below the market price. Prime Minister Ivan Kostov said he will not allow a repeat of the bread shortage that occurred last year and in early 1997. Bulgarian farmers told RFE/RL that they prefer to leave the fields fallow rather than have their profits siphoned by firms run by the former communist nomenklatura, as was the case in the past. Former Prime Minister Zhan Videnov and several of his ministers are under investigation for granting special export rights to their associates in 1995 and 1996.


In an autobiography published on 15 July, Bulgaria's former communist leader says the "worst mistake" of his political career was his failure to resist the reforms imposed by Mikhail Gorbachev and to prevent "Bulgaria's withdrawal from the socialist path," Reuters reported . He says he was opposed to "Gorbachev's theory and to its Bulgarian admirers, who introduced in Bulgaria the same chaos [as elsewhere in the former communist bloc] in order to keep their posts and benefits." Zhivkov was sentenced in September 1992 to seven years for mismanaging state funds, but he never served the sentence on medical grounds and was kept under house arrest. In 1996, the Supreme Court overturned the sentence. He remains under house arrest because he has since been indicted on other charges.

Bulgaria's Currency Board Gets Off to a Good Start

by Michael Wyzan

On 1 July, Bulgaria became the third country in transition--after Estonia and Lithuania--to adopt a currency board. For an indefinite period, the lev will trade at 1,000 to the German mark and be fully backed by the Bulgarian National Bank's (BNB) foreign reserves. Those reserves consist of foreign currency, precious metals, and securities denominated in foreign currency.

Under a currency board, the exchange rate of the domestic currency against a specified world currency (the German mark or U.S. dollar) is fixed. The only increases in the domestic money supply that are allowed are those resulting from converting foreign-currency inflows into domestic currency. In principle, the monetary authorities may no longer finance government budget deficits.

In the fall of 1996, as Bulgaria's economy plunged into the deepest economic crisis faced by any European member of the former Soviet bloc, the IMF made renewed lending conditional on introducing a currency board. Gross domestic product declined by almost 11 percent in 1996, after rising modestly in the two previous years. Consumer prices rose by 243 percent in February 1997 alone, after increasing by only 33 percent in 1995 as a whole. The lev fell from 79 per $1 in April 1996 to almost 3,000 in mid-February 1997, and the monthly wage plunged from $126 in April 1996 to about $35 in February 1997.

The deterioration in macroeconomic performance that began in spring 1996 was triggered by a decline in the BNB's foreign reserves, which left the central bank unable to defend the lev against speculative attacks. Such attacks were inevitable in an economy where the currency unit's nominal value remained unchanged for long periods, in the face of inflation much higher than in the country's main trading partners.

Behind this instability lay unreformed enterprises and banks, whose interaction generated bad debt. When budget subsidies to enterprises fell to low levels, firms kept operating by borrowing from banks. Firms often had no intention of repaying the loans, and most of the larger banks apparently did not object. The banks were expecting refinancing--that is, lending from the BNB, increasingly without collateral--and government programs to convert bad debt into government bonds.

In December 1995, fewer than 26 percent of commercial bank loans were likely to be serviced in a timely manner, and losses state by enterprises totaled 4 percent of GDP in 1993 (down from 30 percent in 1993). Moreover, aggregate banking losses stood at 2-3 percent of GDP.

The currency board is aimed at addressing such fundamental problems. Neither direct subsidies from the budget--which may now run only a small deficit--nor BNB refinancing of commercial banks will be possible. Does adopting a currency board imply a loss of sovereignty? States have adopted all manner of monetary regimes. Those include use of a common currency, as in the case of the 12 CFA countries in West Africa, or of another country's.

Some observers, however, do not believe that the currency boards established by transition countries are "true" ones. The national bank continues to exist and operates "windows" where citizens can exchange foreign currency. It can still influence the money supply via reserve requirements. And there is also a banking department at the BNB that is to act as a lender as a last resort.

For now, all macroeconomic indicators are favorable, with inflation at 0.8 percent in June and the BNB's foreign reserves at record levels. The credibility of government policy is high, with people rushing to turn German marks into leva during the board's first days. Interest rates on the government security market have fallen to under 7 percent a level that neither Estonia nor Lithuania reached until two or three years after the introduction of their currency boards. Currency market players now seem excessively optimistic, after having experienced the opposite for a long period.

In the medium term, however, problems are bound to emerge. The Baltic experience suggests that inflation will remain rather high (20-30 percent) for several years. Other factors remain indeterminate. Who will provide credit to viable enterprises? And will banks concentrate on buying government securities and eschew lending to firms? Moreover, it is uncertain what the political consequences of the inevitable shutdown of enterprises and rising unemployment will be.

The author is a research scholar at the International Institute for Applied Systems Analysis in Laxenburg, Austria.