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Newsline - July 30, 1997


First Deputy Prime Minister Anatolii Chubais announced on 29 July that the results of the Svyazinvest auction "are final and not subject to review," since the sale was conducted "in strict compliance with a government directive," Russian news agencies reported. A consortium involving an Oneksimbank affiliate placed the winning bid for 25 percent plus one share in Svyazinvest. Chubais emphasized that the money earned from the sale will be used to pay wage arrears to armed forces personnel. At the same press conference, Deputy Prime Minister Vladimir Bulgak said some 9 trillion rubles ($1.6 billion) in proceeds from the sale will go to the federal budget, RFE/RL's Moscow bureau reported. Speaking in the Republic of Chuvashia the same day, First Deputy Prime Minister Boris Nemtsov said only "honest auctions" can raise enough funds to pay wage arrears.


Prime Minister Viktor Chernomyrdin has called for the government to examine the situation surrounding the recent Svyazinvest sale, saying such privatization deals should be "absolutely transparent" without any "innuendoes," Russian news agencies reported on 29 July. Speaking to journalists in Krasnodar Krai, Chernomyrdin noted that the government should take steps to ensure that not every privatization deal ends up in court. The prime minister recently criticized the work of the State Property Committee, saying scandals had frequently accompanied major privatizations (see "RFE/RL Newsline," 25 July 1997). Also on 29 July, Chernomyrdin denied rumors of imminent personnel changes at the Russian Public Television (ORT) network. The Svyazinvest sale has drawn sharp criticism from ORT and NTV, along with other media outlets financed in part by large financial groups (see "RFE/RL Newsline," 27 and 28 July 1997).


A statement released by private investors in ORT on 29 July slammed First Deputy Prime Minister Boris Nemtsov for accusing the network's shareholders of trying to buy Svyazinvest on the cheap, Interfax reported. Speaking in Chuvashia, Nemtsov had said earlier in the day that the "owners of ORT and NTV" had tried to acquire one quarter of Svyazinvest for an undervalued price and could not accept that they had lost in a fair auction. The ORT statement said that of the company's shareholders, only Alfa-Bank took part in the Svyazinvest auction (implying that the LogoVAZ group affiliated with Security Council Deputy Secretary Boris Berezovskii was not involved). Meanwhile, the Most group issued a statement denying that Media-Most, which owns NTV, Ekho Moskvy, and the newspaper "Segodnya," had bid for the Svyazinvest stake.


Oneksimbank head Vladimir Potanin told Interfax on 30 July that he is against behind-the-scenes deals related to privatization sales. Potanin confirmed that before the Svyazinvest auction, he had met with Media-Most group head Vladimir Gusinskii, Security Council Deputy Secretary Berezovskii, and First Deputy Prime Minister Chubais. (On 29 July, Chubais also confirmed that such a meeting took place, Interfax reported.) Potanin claimed that Gusinskii and Berezovskii had proposed that Oneksimbank not bid for Svyazinvest, allowing interests controlled by Gusinskii and Berezovskii to acquire the stake for near the starting price. (Only two bids were submitted in the Svyazinvest auction.) Potanin told Interfax that he rejected the deal and that Chubais had confirmed that the government would stand by the terms previously announced for the Svyazinvest sale.


Citing an unnamed source in the presidential administration, "Kommersant-Daily" reported on 30 July that the meeting between Chubais, Potanin, Berezovskii, and Gusinskii was held in France on 23 July, two days before the Svyazinvest auction. The paper said that Berezovskii and Gusinskii sought Oneksimbank's withdrawal from the auction. Among other things, they reportedly threatened to unleash an "information war" and to withdraw their bid for Svyazinvest. However, the paper alleged, Chubais insisted that the auction take place as planned. "Kommersant-Daily" quoted its source as saying that if the media associated with Gusinskii and Berezovskii continue an all-out information war against Chubais's circle, two outcomes are possible: either NTV will be weakened, ORT reorganized and Berezovskii removed from the Security Council; or both Chubais and Nemtsov will have to leave the government.


"Nezavisimaya gazeta" on 30 July charged that a May presidential decree concerning Gazprom shares, drawn up by associates of Nemtsov, had damaged the gas monopoly's market capitalization. Noting that Gazprom shares stopped rising in value after the decree was signed, the newspaper calculated that the state had lost some $2 billion over the last two months. In addition, the paper accused Nemtsov of seeking to undermine Gazprom and its top executive Rem Vyakhirev while having Boris Brevnov, a close Nemtsov associate, installed as chairman of the board of the electricity giant Unified Energy System (see "RFE/RL Newsline," 2 June 1997). The newspaper argued that the recent decision to allow the electricity giant to issue convertible bonds was orchestrated by Nemtsov to show that only the "young reformers" in the government are capable of solving the country's budgetary problems. "Nezavisimaya gazeta" is partly financed by Berezovskii's LogoVAZ group.


President Boris Yeltsin on 28 July issued a decree naming Prime Minister Chernomyrdin to oversee the arms trading company Rosvooruzhenie and military-technical cooperation with foreign countries, Russian media reported. The decree subordinates Rosvooruzhenie directly to the Russian government, according to Interfax. Its director will be appointed by the president at the prime minister's recommendation. The decree ends a one-year struggle for control of the weapons sector, beginning with the dismissal in June 1996 of First Deputy Prime Minister Oleg Soskovets and Yeltsin's influential bodyguard Aleksandr Korzhakov, who until then had supervised arms sales. At that time, Chernomyrdin failed to persuade Yeltsin to replace Rosvooruzhenie's current director, Aleksandr Kotelkin, with former Deputy Premier Georgii Khizha, according to "Kommersant-Daily" on 30 July.


In a statement released by the Kremlin on 29 July, Yeltsin asked the military to support planned reforms of the armed forces, Russian media reported. He repeated the promise that wage arrears to servicemen will be paid by 1 September. Reforms are necessary and will lead to the "enhancement of the country's military," making military forces "compact, mobile, and well-equipped," he said. Yeltsin also quoted the 18th century Russian commander Aleksandr Suvorov's statement that "victory is the product of skill rather than numbers." The president wants to keep to the 1 January 1999 deadline to cut the armed forces to 1.2 million personnel. He said housing will be constructed and arrangements made for those leaving the service to receive work "corresponding to their training," even if that meant sending some abroad to study. He made no mention of his May 1996 decree to form an all-volunteer army by 2000.


Khozh-Akhmed Yarikhanov, head of the Chechen State Oil Company Yunko, told journalists in Grozny on 29 July that Russian agencies are preventing the company from acquiring equipment needed to repair the Chechen sector of the Baku-Grozny-Tikhoretsk oil pipeline, Interfax reported on 29 July. Yarikhanov said the Russian Central Bank has failed to unfreeze the accounts of Yunko's subsidiaries in Russian banks. He said that under those circumstances, "I cannot honor the commitments under the agreement on the pumping of Caspian oil."


Also on 29 July, Chechen presidential spokesman Kazbek Khadzhiev said the suspension of Chechen-Russian talks announced by President Aslan Maskhadov does not apply to contacts with the Russian government and Security Council, according to "Nezavisimaya gazeta" on 30 July. Security Council Secretary Ivan Rybkin told ITAR-TASS that combined efforts to restore Chechnya's economy "have not stopped and will not stop for one minute." Commenting on Maskhadov's call for a full-fledged treaty between Chechnya and the Russian Federation and for the opening of embassies in Moscow and Grozny, Russian Foreign Ministry spokesman Valerii Nesterushkin said the Russian government continues to observe the agreement signed in summer 1996 in Khasavyurt that postpones a definitive ruling on Chechnya's political status vis-a-vis the Russian Federation. He added that Chechnya remains a federation subject.


Yurii Bespalov, the president of the fully state-owned oil company Rosneft, has announced that the number of Rosneft shares that may be purchased by foreign investors will not be restricted when the company is privatized later this year, Russian news agencies reported on 29 July. It would be the first oil company privatization in Russia with no limits on foreign participation. Under a plan recently approved by the company's board of directors, the state will not retain a controlling stake in Rosneft, Bespalov said. Instead, 7.6 percent of Rosneft shares will be sold to company staff, a 51 percent stake will be auctioned in August or September, and the remaining shares will be sold to investors under terms to be announced later. Earlier this year, Fuel and Energy Ministry officials had suggested that the state would keep a controlling stake in Rosneft.


Former Security Council Secretary Aleksandr Lebed says First Deputy Prime Minister Nemtsov has "made too many mistakes" to be considered a serious contender for the next presidential election. He told Interfax on 29 July that Nemtsov's planned reform of payments for housing and municipal services will hurt the poor far more than the rich, adding that the standard of living should be raised before housing reform is implemented. With regard to his own presidential prospects, Lebed said consultations with potential supporters were under way, and he suggested that Moscow Mayor Yurii Luzhkov might become one of his allies. Lebed's criticism of the government's planned housing reform echoes recent comments by Luzhkov. But in September 1996, the Moscow mayor was one of the most outspoken critics of the peace plan Lebed negotiated with Chechen rebel commander Aslan Maskhadov. Luzhkov called the deal a "bomb under the [Russian] constitution."


Kemerovo Governor Aman Tuleev told ITAR-TASS on 30 July that, thanks to advanced technology in grain production and processing, bread prices in Kemerovo Oblast will gradually be reduced by an average of 20 percent beginning in August. Tuleev was appointed governor by Yeltsin in early July and will contest an election for that post in October. "Nezavisimaya gazeta" reported on 30 July that Tuleev's appointment has divided the left camp in Kemerovo. Four other politicians, all Communists, have already declared that they will run for governor. Some formerly staunch supporters of Tuleev now call him a traitor and believe he will serve the interests of the Kremlin and Moscow businessmen. Although Tuleev is not a Communist Party member, he was third on the Communist list for the December 1995 parliamentary elections and supported party leader Gennadii Zyuganov's presidential bid in 1996.


Over the past few days, Russian border guards have turned back some 170 alcohol tankers at the frontier between Georgia and North Ossetia, Russian agencies reported. Border guards have been fired on with anti-tank missiles and offered bribes of up to $1 million to allow the tankers to enter Russia. Some 550 tankers, each containing 20 metric tons of alcohol, are currently being refused entry to Russia from two frontier crossing posts, the head of the Vladikavkaz frontier district told Interfax on 29 July. Since the closure of many defense plants in North Ossetia, the manufacture of fake vodka has become the leading industry in the republic.


The CIS peacekeeping force deployed along the border between Abkhazia and the rest of Georgia will be withdrawn unless Georgia and Abkhazia formally request that its mandate be prolonged after it expires on 31 July, Russian Foreign Ministry spokesman Valerii Nesterushkin told ITAR-TASS on 29 July. According to "Nezavisimaya gazeta" the next day, the peacekeepers are already training for the withdrawal. The Georgian parliament has rejected a proposal by opposition deputies to convene an emergency session to discuss the peacekeepers' continued presence and has begun its summer recess, "Rossiiskaya gazeta" reported. The chairman of the Abkhaz parliament in exile, Tamaz Nadareishvili, said that the 3,000 ethnic Georgian former Abkhaz police who have been sent to western Georgia will not automatically cross the border into Abkhazia's Gali Raion if the peacekeepers withdraw, "Svobodnaya Gruziya" reported on 29 July.


Heidar Aliev, meeting with UN Secretary-General Kofi Annan in New York on 28 July, discussed ways to alleviate the plight of the Azeris driven from their homes during the Karabakh conflict. Annan expressed his support for the deployment of a multinational peacekeeping force under the auspices of the Organization for Security and Cooperation in Europe, according to AFP.


The leadership of the United Tajik Opposition has appealed to UN special envoy to Tajikistan Gerd Merrem to use his influence to pressure the Tajik government to adhere to agreements reached in Moscow in June, according to RFE/RL correspondents in Tajikistan. The 27 July session of the National Reconciliation Commission was postponed for "technical reasons," meaning the failure to find housing and office space for members of the UTO returning to Dushanbe to participate in the commission's work. UTO leader Said Abdullo Nuri, meeting with Iranian Foreign Minister Ali Akbar Velayati on 29 July in Tehran, requested that Iran use its influence to accelerate government efforts at resolving the "technical problems." Iran is one of the guarantors of the Tajik peace process.


About 400 people gathered in the northern city of Kokchetau on 29 July to protest living conditions, ITAR-TASS reported. They called for an end to the reform process, which, they say, has had little effect in their area. The news agency reports that every fourth person in Kokchetau is without employment and that every third cannot pay for housing and utilities. Pensioners are only now receiving their March and April payments. The situation grew worse after Kokchetau Oblast was merged with Northern Kazakhstan Oblast earlier this year. Kokchetau city was subsequently deprived of the funding it had previously received as a regional center.


The U.S. company A.E.S. Suntry Power has reached agreement with the Kazakh government on concession rights to the Shulbinsk and Ust-Kamenogorsk hydroelectric plants, Interfax reported on 29 July. The U.S. company plans to invest about $600 million in the plants, which, according to a Kazakh official, are in a "deplorable state." A.E.S. bought Kazakhstan's Ekibastuz thermal power plant in August 1996.


The U.S. company Shell Oil has sent a letter to President Saparmurat Niyazov expressing the company's interest in participating in projects to develop Turkmenistan's "legendary" hydrocarbon resources, ITAR-TASS reported on 29 July. The letter also noted that, because of its geographical location, Turkmenistan was in the "unique position" to supply several markets. Shell also referred to the potential of Caspian Shelf fields. "Nezavisimaya gazeta" on 30 July quoted Niyazov as saying that Turkmenistan intends to hold a tender in the U.S. for for exploitation of the disputed Kyapaz field of the Caspian the Turkmen call Serdar. Azerbaijani and Russian oil companies signed an agreement earlier in July on the joint exploitation of the deposit.


President Islam Karimov announced on 29 July that in the first six months of this year, industrial output increased by 5.4 percent and agricultural production by 22.8 percent, Interfax reported. Transportation and communications operations rose by 1.8 percent, construction by 1 percent, retail commodity turnover by 13.5 percent, and services by 18.1 percent. Karimov also pointed out that while GDP was up by only 1.6 percent in 1996, it had already grown by 3.9 percent in the first six months of this year. Inflation decreased from 13 percent in December 1996 to 2.9 percent in May 1997 and consumer prices fell by 3.1 percent in June. While some international financial organizations predicted average monthly inflation at 7 percent, the rate for January to June 1997 was 3.5 percent.


The Procurator's Office and plaintiff Dastan Sarygulov on 29 July appealed to the Supreme Court to enforce the original verdict against four journalists for the Kyrgyz weekly newspaper "Res Publica," according to RFE/RL correspondents in Bishkek. In May, two journalists for "Res Publica" were sentenced to 18 months in jail and two others barred from practicing journalism for the same period because of accusations printed against Sarygulov in their newspaper. The verdict against the journalists was overturned in June by a Bishkek court, which revoked the sentences of three of the journalists and ruled that editor-in-chief Zamira Sydykova would serve her sentence in a penal colony rather than in jail.


The criminal case against the three Russian television journalists accused of illegally crossing the Belarusian border has been handed over to the KGB in Grodno for investigation, Belapan reported. Russian Public Television (ORT) reporters Pavel Sheremet, Dmitrii Zavadskii, and Yaroslav Ovchinnikov are being held by the Belarus KGB in pre-trial detention in Grodno. A decision is expected on 30 July on whether they will be freed pending their trial. The three are charged with illegally crossing the Belarusian border with Lithuania while preparing a report on the Belarusian border guards. Belarusian President Aleksandr Lukashenka has accused the Russian media of waging an "information war" against Belarus (see "RFE/RL Newsline, 29 July 1997).


Russian President Boris Yeltsin on 30 July asked reporters to convey to Lukashenka, that he is "indignant" over the Belarusian authorities' treatment of the ORT journalists and wants an explanation, Interfax reported. Speaking from Samara Oblast, where he is vacationing, Yeltsin warned that Russia may reconsider the union charter recently signed with Belarus. He added, "We do not touch Belarusian journalists." ORT management on 29 July had urged Yeltsin to "take a clear position on freedom of the press in Belarus." The same day, the Russian Foreign Ministry summoned the Belarusian ambassador in Moscow, Viktor Danilenka, to request the release of the journalists, Russian media reported.


Klaus Kinkel arrived in Kyiv on 29 July for two days of talks with President Leonid Kuchma, Prime Minister Valery Pustovoitenko, and Foreign Minister Hennady Udovenko, dpa reported. Kinkel is scheduled to visit NATO's information center in Kyiv, the new premises of the German embassy, and a Protestant Church. He is accompanied by a business delegation that will meet with senior government officials. The two sides will also discuss the issue of trophy art taken to Ukraine by the Soviets after the end of World War II.


Goohoon Kwon, the IMF's resident representative in Kyiv, says an agreement has been reached in principle with Ukraine on a temporary loan, Reuters reported. The agreement is tentative and subject to the approval of the IMF board. Kwon did not say how much the one-year loan is worth, but Ukrainian officials have said it will total $750 million. Ukraine's last stand-by agreement with the IMF expired in February. The agreements are seen as a temporary measure until Kyiv fulfills conditions to qualify for a three-year credit valued at between $2.5 billion and $3 billion.


Ethnic Affairs Minster Andra Veidemann met with his Russian counterpart, Vyacheslav Mikhailov, in Moscow on 28 July, ETA and BNS reported. Mikhailov said that direct contacts between the two ministers could lead to a solution to the problems of Russians living in Estonia. He urged Tallinn to sign a memorandum on cooperation between the two countries' immigration authorities. Veidemann promised to speed up the integration of the Russian-speaking minority into Estonian society following the European Commission's recommendation that Estonia be invited to begin talks on accession to the EU. On 31 July, Estonia's Citizenship and Immigration Department is to begin registering those people who have no valid identification documents. It is estimated that there are between 20,000 and 50,000 illegal residents in Estonia, of whom the overwhelming majority are ethnic Russians.


Premier-designate and former Economics Minister Guntars Krasts on 29 July began consultations with the political parties represented in the parliament on the formation of a new government, BNS reported. Krasts told reporters that he believed the new cabinet should be as broad-based as its predecessor, which was composed of seven parties. He also said he was not categorically opposed to the nomination by Latvia's Way of Vilis Kristopans as transport minister. Kristopans resigned from that post after the Prosecutor-General's Office had announced he violated the anti-corruption law. Krasts's Fatherland and Freedom party, however, has urged other political groups not to nominate those former ministers who resigned amid the recent corruption scandal.


Government spokeswoman Aleksandra Jakubowska told journalists on 29 July that 150 schools damaged by the worst floods in centuries have to be repaired within the next month, before the end of the summer vacation. She said that, in general, priority would be given to rebuilding and repairing public buildings such as schools, courts, hospitals, local government headquarters, libraries, and some sport facilities. Many bridges, roads, and railways were destroyed by the floods. Jakubowska said the government planned to repair all protection dikes by the end of October, clear river beds by 30 November, and repair dams by the end of the year. The government does not yet have estimates of the costs of repairing the damage, but independent analysts say some 7.5 billion zlotys ($2.2 billion) will be needed.


Vaclav Havel on 29 July toured flood-damaged areas of the Czech Republic and urged residents to rebuild their communities so that they are "stronger and more beautiful," Czech Television reported. He said 40 years of communism had left many cities and towns run down and unattractive. The floods give Czechs a chance to improve that situation, he commented. Havel traveled with Defense Minister Miloslav Vyborny to one of the worst affected areas, some 150 kilometers east of Prague. The Czech government has announced that people whose homes were destroyed will each receive 150,000 crowns and be entitled to low-interest loans worth 850,000 crowns.


French Foreign Ministry spokesman Yves Doutriaux said on 29 July that the Slovak Constitutional Court's verdict in the case of former deputy Frantisek Gaulieder was in line with the "norms of a legal state that have to be respected by countries aiming for European Union membership." The court ruled on 25 July that the Slovak parliament violated Gaulieder's constitutional rights in stripping him of his mandate in December 1996. Doutriaux commented that "it is important that the parliament draw conclusions" from that ruling and allow Gaulieder to take up his place in the parliament once again. Gaulieder was stripped of his mandate after he left Prime Minister Vladimir Meciar's Movement for a Democratic Slovakia. Parliamentary chairman Ivan Gasparovic had produced a letter, allegedly signed by Gaulieder, in which the deputy stated he was giving up his mandate. Gaulieder, however, denied signing such a letter.


Russia will repay $320-380 million of the $650 million it owes Hungary by the end of this year, while the remainder will be paid in equal installments between 1998 and 2000, Hungarian media reported on 30 July. The agreement was reached by Hungarian Industry, Trade, and Tourism Minister Fazakas Szabolcs during his visit to Moscow on 28-29 July. The two sides agreed that Russia will continue to make payments in the form of military equipment and consumer or industrial goods. Fazakas and his hosts also agreed on a $10 million credit to increase Hungarian exports to that country.


Hungarian Welfare Minister Mihaly Koekeny suggested on 29 July that tobacco companies pay compensation for health damage caused by smoking, Hungarian media reported. The arrangement, similar to the recent U.S. draft agreement, would ensure tobacco companies of immunity from lawsuits regarding damage to health. The minister said smoking causes health damage totaling 90 billion forints ($475 million) each year in Hungary, including the costs of health care. Foreign tobacco companies say Koekeny's proposal is not feasible under present conditions, since taxes on cigarette sales are twice as high in Hungary as in the U.S.


The new parliament overwhelmingly endorsed the government of Prime Minister Fatos Nano on 29 July. After the vote, Nano invited the legislators to "build together our common European future... The best times for every Albanian and the nation lie in its future and not in the past." His two most urgent tasks are restoring law and order and revitalizing the economy. Some 20 people were killed by illegally owned weapons on 28 July alone. Gross domestic product continues to decline, while vast amounts of industrial equipment are smuggled out to Montenegro and sold as scrap. Inflation is expected to reach 50 percent by the end of the year, and the government deficit is also on the rise. Finance Minister Arben Malaj told the parliament on 29 July that the IMF will send a delegation to Albania in August to reach a stabilization agreement.


Interior Minister Neritan Ceka's office announced in Tirana on 30 July that he has sacked several senior officials, including the criminal police head, the special forces director, the head of the border forces, and the director of the logistics department. Ceka said that the individuals involved are incompetent political appointees from the Democratic Party and will be replaced by "experts" whom the Democrats had fired earlier.


Pavle Bulatovic and officials of the Yugoslav Justice Ministry said in Belgrade on 29 July that Montenegrin Public Prosecutor Vladimir Susovic damaged Yugoslavia's interests and "struck a low blow" in linking Bulatovic to war crimes (see "RFE/RL Newsline," 29 July 1997). Neither Bulatovic nor the ministry, however, denied the charges that Bulatovic helped in the deportation of Muslims to Bosnian Serb territory, an RFE/RL correspondent reported from Belgrade. Meanwhile in Podgorica, Prime Minister Milo Djukanovic rejected President Momir Bulatovic's charges that the authorities encouraged the stoning of a visiting Serbian delegation (see "RFE/RL Newsline," 29 July 1997).


Dusan Malesevic, the director of the company that owns "Nasa Borba," wrote Serbian Prime Minister Mirko Marjanovic on 29 July that a $65,000 tax bill leveled against the company is "aimed at snuffing out 'Nasa Borba' and represents a threat to the independent media." "Nasa Borba" is Yugoslavia's leading independent daily and has been harassed by the authorities in the past. Yugoslav President Slobodan Milosevic said recently that the upcoming Serbian elections will be free and fair, while the Serbian authorities say that they have postponed planned measures against the independent media (see "RFE/RL Newsline," 28 July 1997). Independent human rights groups charge, however, that the authorities are proceeding with the shutdown of independent radio stations.


Croatian Foreign Minister Mate Granic on 29 July said that Croatia will not turn over to the Hague-based war crimes tribunal documents that the court has subpoenaed. Granic charged that the tribunal has no right to make such demands on a sovereign state. He added that Croatia is not obliged to hand over information that "is vital to its national security." The documents in question relate to the Croatian-Muslim conflict in Bosnia. Meanwhile in The Hague, Sefkija Djidic, the Muslim police chief in Vitez, claimed at the trial of Croatian Gen. Tihomir Blaskic that Croatian snipers killed children and old people in that central Bosnian town in 1993. Court officials, for their part, announced that international experts have begun excavating a mass grave near Brcko in Bosnia. The grave is believed to contain the remains of Muslims and Croats killed by the Serbs at the Luka concentration camp.


Gen. Ivan Korade has been arrested after rejecting his recent retirement by President Franjo Tudjman and refusing to hand over the command at Varazdin to his designated successor There has been no official confirmation of the story, which is reported by Western agencies. Korade is a hero of the 1995 campaign against Knin, but the Varazdin district prosecutor charged him in May with "violent behavior" in that town. Korade has refused to appear in court to answer the charges. And on the island of Hvar, fire fighters and local citizens succeeded on 29 July in containing a fire that has already destroyed over 6,000 acres of forests, olive trees, and vineyards. The authorities have declared two towns on the island disaster areas.


Carlos Westendorp, the international community's chief representative in Bosnia, announced in Sarajevo on 29 July that he is setting up a commission to investigate corruption in the Bosnian government. Westendorp's agency will be independent of a similar body set up by President Alija Izetbegovic in response to criticism by visiting British Foreign Secretary Robin Cook, an RFE/RL correspondent reported from Sarajevo. Cook, for his part, said that all sides have failed to carry out the Dayton agreement sufficiently or ensure freedom of the media. Cook also slammed the existence of power centers outside state structures, and cited the Bosnian secret service as an example. Meanwhile, "The New York Times" reported on 30 July that the White House will send envoy Richard Holbrooke back to the Balkans to encourage implementation of the Dayton agreement.


Victor Ciorbea on 29 July met with representatives of the main trade unions to discuss the negotiations under way with the IMF. He said that in the coming weeks, four unprofitable state-owned refineries and several mines will be closed. The trade unions demanded adequate social protection for affected workers as well as the indexation of wages to reflect price increases, RFE/RL's Bucharest bureau reported. Also on 29 July, the National Commission for Statistics announced that inflation in June was 2.3 percent, similar to that in May. Inflation since December 1997 totals 101.2 percent. The Agency for Development reported the same day that foreign investment in Romania has reached $2.57 billion, of which $372 million have been invested since the beginning of 1997.


Alexandru Farcas, the prefect of Cluj, on 29 July asked the Prosecutor-General's office to open an investigation into the local nationalist mayor, Gheorghe Funar. He accused Funar of having instigated the incident in which a Hungarian flag was stolen from the Hungarian consulate (see "RFE/RL Newsline," 28 July 1997). He said if the mayor is found guilty, he will be dismissed. Funar, for his part, said he will sue Farcas for slander, RFE/RL's correspondent in Cluj reported. The previous day, Funar had addressed open letters to Prime Minister Ciorbea and Foreign Minister Adrian Severin demanding that the government abolish the ordinance allowing bilingual signs, declare the Hungarian consul in Cluj "persona non grata" in Romania, and close the recently opened consulate.


Three more persons have died as a result of the floods in Vaslui County, eastern Romania, bringing the total of those who have drowned in the recent floods to four, RFE/RL's Bucharest bureau reported on 29 July.


David Owen, who is heading an IMF delegation in Tiraspol, said on 29 July that the granting of credits to the breakaway region is conditional on the pace of normalization of relations with Chisinau, an RFE/RL correspondent in the Moldovan capital reported. Owen also said the fund will not approve credits to the Transdniester without first consulting Chisinau.


Turkish and Bulgarian officials, meeting in Ankara on 29 July, signed a military agreement providing for cooperation in defense and security, military technology, logistics, and instruction. At the signing ceremony, Turkish Chief of Staff Gen. Ismail Kakki Karadayi said the two sides will reduce the number of troops deployed near the countries' joint border to further enhance mutual trust. His Bulgarian counterpart, Gen. Miho Mihov, said the agreement was further proof of Turkish support for Bulgaria's drive to join NATO, RFE/RL's Sofia bureau reported.


In a statement released in Washington on 29 July, the IMF praised Bulgaria's efforts to stabilize its economy, Reuters reported. The fund says financial markets have reacted favorably to the introduction of the currency board in Bulgaria and that the country now has an "excellent opportunity to reinvigorate and complete the reform [process]." But it warns that there is "no room for slippage or complacency, as significant risks remain." In other news, it was announced on 28 July that Bulgaria's National Investigation Service will seize the passports of more than 1,5000 citizens suspected of involvement in corruption. The group includes former ministers and deputies, bankers, credit millionaires, and heads of insurance companies suspected of racketeering.

Why Estonia rather than Latvia or Lithuania?

by Michael Wyzan

On 15 July, the European Commission announced it was recommending that Estonia -- together with the Czech Republic, Hungary, Poland, and Slovenia -- begin negotiations on accession to the EU. Estonia may well be the most advanced economic reformer among the postcommunist countries. Equally important, with 1.5 million people and a gross domestic product of some $4 billion, it is so small that it will not present a burden to Brussels's coffers.

Estonia is the wealthiest country to emerge from the former Soviet Union; in April, the average monthly wage stood at DM 406 ($235), about two-thirds of that in the richest Visegrad countries. It has a strong Western trade orientation: the top five export destinations in 1996 were Finland, Russia, Sweden, Latvia, and Germany. While 98 percent of exports went to other Soviet republics in 1990, that figure was only 40 percent (24 percent for the CIS alone) in 1996.

One hallmark of Estonian economic policy has been liberalism toward domestic and foreign activity; for example, it has no import tariffs. It has modeled its privatization methods on those of the former East Germany, focusing on the search for cash-paying strategic investors, especially foreign ones. Estonia's use of such methods has resulted in unusually high volumes of foreign investment (DM 1.3 billion or some $800 million through the end of 1996).

Another characteristic has been rigorous macroeconomic policy. In June 1992, Estonia became the first former communist country to introduce a currency board (since adopted by Lithuania, Bulgaria, and Bosnia), which eliminates most discretion on the part of the monetary authorities to stimulate the economy. Under such an arrangement, the central bank is barred from financing government budget deficits.

Moreover, Tallinn has been unusually tough in closing failed banks and dealing with the consequences of such failures. The Estonian Central Bank imposed a moratorium on three banks in November 1992; and in January 1993, it proceeded to close one of those banks (without compensating shareholders or depositors) and to merge the other two, providing only partial compensation to their depositors.

Those policies have paid off in macroeconomic performance. Monthly inflation, though slow to come down, was only 0.7 percent in the 12 months to March 1997. GDP grew by 4.3 percent in 1995 and 4.0 percent in 1996, after declining in previous years. The state budget has either been virtually balanced or in slight deficit, while the public debt is low.

Estonia is closer to meeting the EU's Maastricht convergence criteria than many current members of the union. Even its worst problems, especially large and growing trade and current-account deficits, are similar to those of such obvious candidates for accession as the Czech Republic.

The question to be asked is not why Estonia was invited to begin membership talks, but why Latvia and Lithuania were not invited to do so. The EC justified its decision not to include them on the grounds that they lagged behind in establishing market economies.

But Latvia seems an only slightly less attractive candidate than Estonia. It used similarly tough methods to deal with a far more severe banking crisis than Estonia's. Between February and May 1995, five of Latvia's 10 biggest commercial banks became insolvent. Like Tallinn, Riga provided only partial compensation to depositors and tightened capital requirements and banking regulations.

Those tough policies paid off. While Latvia weathered a bad year in 1995 (GDP fell by 0.8 percent), it saw a marked improvement in 1996 (GDP rose by 2.8 percent). Inflation has generally been lower than in Estonia (in 1995, Riga registered inflation of 13.2 percent and Tallinn 15 percent). Latvia is also the leader in pension reform among post-communist countries.

Latvia's demerits include relatively slow and non-transparent privatization and trade oriented less toward the West (and a lower volume of foreign investment). It suffers from a high degree of political instability, with no fewer than five ministers resigning over the past two months and the premier following suit earlier this week. But Estonia has suffered from similar problems in the past.

Lithuania seems a somewhat less alluring candidate than its northern neighbors, but the gap between it and the others is not so big. By 1996, inflation was running at 13.1 percent, while GDP growth has been positive since 1994. It was the first Baltic State to move ahead with privatization, although the voucher-based system introduced early on proved unsatisfactory.

While Lithuania's relations with the IMF have been more difficult than those of the other two Baltic States, they nonetheless remain on track. However, it is the poorest state of the three and has the least welcoming attitude toward foreign capital.

In conclusion, the EU may have to expend more effort justifying its decision not to invite Latvia and Lithuania to the negotiating table than was needed for the decision to invite Estonia.

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