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Newsline - September 23, 1997


U.S. Vice President Al Gore told journalists on 22 September that during his first day of talks with Russian Prime Minister Viktor Chernomyrdin, the main topics were Iran, START-2, U.S. investments in the Russian oil sector, and the "Mir" space station. Gore said the two sides pledged to cooperate on preventing Iran from acquiring nuclear technology and that the differences between them on that issue had "narrowed considerably," Reuters reported. Gore also said Chernomyrdin appears optimistic that the Russian parliament will ratify the START-2 treaty. Several State Duma opposition factions, however, recently said they will oppose ratification (see "RFE/RL Newsline," 17 and 18 September, 1997) Gore reaffirmed support for continued U.S.- Russian space research but withheld judgment on whether the planned seventh docking of a U.S. space shuttle with "Mir" should proceed following the latest breakdown in the station's computer system.


During his talks with Chernomyrdin, Gore expressed concern about the religion law recently passed by the Duma, Reuters reported on 22 September. Gore told journalists that amendments made since President Boris Yeltsin vetoed an earlier version in July did not allay concerns that some minority religions will face discrimination (see "RFE/RL Newsline," 22 September 1997). He added, "I've tried hard to explain exactly why we Americans feel so strongly about [the religion law]." But while he said he hoped to persuade the Kremlin to seek further changes in the religion law, Gore acknowledged that Chernomyrdin gave him no reason to expect that Yeltsin will veto the revised version.


Ruslan Orekhov, head of the presidential administration's Main State Legal Department, and former presidential adviser Georgii Satarov told journalists on 22 September that the revised religion law fully complies with both Russia's constitution and international law, ITAR-TASS reported. Orekhov and Satarov specifically defended the most controversial aspect of the law, which divides religions into two categories: "religious organizations" (which can prove they have existed in Russia for at least 15 years) and "religious groups" (which cannot meet the 15-year requirement). Critics have charged that groups that cannot pass the 15-year test will be denied equal rights and may face persecution.


Russian Foreign Minister Yevgenii Primakov and U.S. President Bill Clinton met in New York on 22 September during the UN General Assembly session. The agenda, which was proposed by Clinton, included Bosnia-Herzegovina, the Middle East, and disarmament. Primakov told Clinton that Russia will not oppose President Biljana Plavsic's proposal to hold parliamentary elections in October in the Republika Srpska. He also said Moscow has made progress toward ratifying START-2, although "difficulties remain." Agreement was reached on resuming the joint drafting of START-3. Clinton expressed concern over Russia's reported assistance to Iran in developing long-range nuclear weapons. Primakov told journalists later that the U.S. regards Russia as a "serious, informed, and capable partner" with whom it wishes to cooperate in resolving a range of problems.


First Deputy Prime Minister Anatolii Chubais told the annual meeting of the World Bank and IMF on 23 September that Russia's economic decline has been halted and that economic growth will begin in 1998, RFE/RL's correspondent in Hong Kong reported. Chubais predicted that the ruble will remain stable and that inflation will fall to 5-7 percent next year, compared with projected inflation of 13 percent in 1997. At a press conference on 22 September, Chubais expressed confidence that Russia will be able to keep the 1997 budget deficit to 3.5 percent of GDP. While he acknowledged that tax collection still lags behind budget targets, Chubais said Russia will make up for some of the shortfall by selling state property. He again called for the parliament to pass the government's proposed new tax code.


Following talks on 22 September with World Bank President James Wolfensohn, Chubais told reporters that Russia hopes the bank will agree as early as December on the terms of a second loan for restructuring the Russian coal industry, Russian news agencies reported. Chubais said Moscow is asking the bank to increase the second loan from $650 million to $750 million. The bank's board of directors has not yet decided whether to issue that credit; some funds from a $500 million coal loan to Russia in 1996 are said to have been misused. A World Bank delegation will arrive in Moscow soon to examine the Russian proposals and settle problems connected to the first coal loan. Chubais heads an interdepartmental government commission on the socio-economic problems of the coal industry (see "RFE/RL Newsline," 21 August 1997).


Russian Central Bank Chairman Sergei Dubinin took time out from the World Bank and IMF annual meeting to hold talks with the head of China's state bank, Dai Xianglung, Russian media reported on 22 September. Dubinin raised the possibility of Russian deals with China being conducted in yuan and of opening a Russian Central Bank office in China. He said that both measures would facilitate growing economic cooperation between the two countries. Dubinin will travel from Hong Kong to Beijing after the World Bank-IMF meeting to further discuss the two proposals.


Representatives of all seven Duma factions have called for rejecting the draft 1998 budget in the first reading, which is scheduled for 8 October, "Kommersant-Daily" reported on 23 September. Even prominent figures in the pro-government Our Home Is Russia faction, such as Duma Privatization Committee Chairman Pavel Bunich and Duma Budget Committee Deputy Chairman Aleksei Golovkov, have demanded that the draft be amended, particularly the revenue targets, Russian news agencies reported on 22 September. According to "Kommersant-Daily," the Our Home Is Russia, Agrarian, and Russian Regions factions favor sending the draft to a conciliatory commission of government and parliamentary representatives. Duma Budget Committee Chairman Mikhail Zadornov of Yabloko has also advocated creating such a commission, RFE/RL's Moscow bureau reported on 23 September. The Communist, Popular Power, and Liberal Democratic Party of Russia factions favor returning the budget directly to the government.


"Finansovye izvestiya" reported on 23 September that the National Economic Council, which is headed by Sverdlovsk Oblast Governor Eduard Rossel, is dissatisfied with the draft budget. In an interview with "Rabochaya tribuna" on 19 September, Samara Oblast Governor Konstantin Titov sharply criticized the government's proposed tax code, on which projected 1998 budget revenues are based. Titov chairs the Federation Council's Budget Committee and is also deputy chairman of the Our Home Is Russia movement. He told "Rabochaya tribuna" that the tax code recognizes the obligations of the regions, but not their rights. Moscow Mayor Yurii Luzhkov and Tatarstan President Mintimer Shaimiev have already criticized the tax code and 1998 budget (see "RFE/RL Newsline," 19 September 1997). Those developments suggest that the government will have trouble persuading the Federation Council to approve its main economic policy initiatives.


"Kommersant-Daily" on 20 September claimed that an Audit Chamber report on exports of precious metals and gemstones is intended to promote the business interests of Oneksimbank. The Audit Chamber found that during the last two years, some $1 billion earned from sales of precious metals and gemstones passed through Finance Ministry accounts held by the commercial bank SBS-Agro (formerly Stolichnyi Bank). Some of the proceeds are alleged to have been misappropriated, and the Duma may demand changes at Almazyuvelireksportom, Russia's largest exporter of precious metals and gemstones. Citing an unnamed Duma source, the newspaper claimed that Oneksimbank is behind the Audit Chamber's report, because the bank is seeking more control over platinum exports. Norilsk Nickel, in which Oneksimbank purchased a controlling stake in August, produces most Russian platinum. SBS-Agro provides financial support to "Kommersant-Daily."


In an interview with "Segodnya" on 20 September, Aleksandr Smolenskii, head of the bank SBS-Agro, said the president should "listen to different groups of the population" and not just the views of the government's "young reformers" (meaning First Deputy Prime Ministers Anatolii Chubais and Boris Nemtsov). Smolenskii attended the recent meeting at which Yeltsin told six leading businessmen to stop "quarreling with the government" (see "RFE/RL Newsline," 16-17 September 1997). In a clear reference to Chubais, Smolenskii criticized an official who claims to "know how to lead Russia to the bright future." He also drew a parallel between reports that an oil company may be plotting Chubais's assassination and the so-called "doctors' plot" against Josef Stalin in 1952, which preceded a campaign of official persecution against Soviet Jews. "Segodnya," owned by Vladimir Gusinskii's company Media-Most, has repeatedly criticized Chubais and Nemtsov in recent months.


Aleksei Yablokov, a former ecological advisor to Yeltsin, has confirmed the existence of suitcase-sized nuclear bombs in an interview with NTV on 22 September and in a letter published in "Novaya gazeta" the same day. Yablokov said he had talked with people who designed the bombs in the 1970s. Although he could not confirm that any were missing, he pointed out that the bombs were manufactured for terrorist purposes on KGB orders and therefore would not have been registered by the Defense Ministry. Appearing on the U.S. television network CBS on 8 September, former Security Council Secretary Aleksandr Lebed claimed that more than 100 suitcase bombs were built and that most of them are currently unaccounted for. The Russian Defense Ministry and Kremlin officials have denied that any bombs are missing. Lebed repeated the claims on 19 September, during a private visit to Japan.


A Slovak government delegation headed by Deputy Economics Minister Jean Kholton has expressed interest in buying petroleum from Tatarstan and in the joint production of oil, RFE/RL's Kazan bureau reported on 23 September. The two sides also discussed an inter-governmental agreement on cooperation. President Shaimiev may visit Slovakia in November to witness the signing of this agreement.


Armenian Foreign Ministry spokesman Arsen Gasparyan told journalists on 22 September that the three co-chairmen of the Organization for Security and Cooperation in Europe's Minsk Group did not make any new proposals during their talks with Armenian leaders two days earlier, RFE/RL's Yerevan bureau reported. Gasparyan said the discussions focused on the "methodology" of resolving the conflict. The unrecognized Nagorno-Karabakh Republic advocates a "package" solution whereby all contentious issues are resolved in a single document, while Armenia prefers a step-by-step approach that would postpone a decision on the future political status of Nagorno-Karabakh. The co-chairmen also met with the Karabakh leadershipin Yerevan on 22 September before leaving for Baku, according to Interfax.


Parliamentary speaker Babken Ararktsyan, Foreign Minister Alexander Arzoumanian, and other senior officials met with representatives of the Armenian Revolutionary Federation--Dashnaktsutyun (HHD) on 20 September, Armenian agencies reported. President Levon Ter-Petrossyan suspended the party in December 1994, accusing its members of terrorist activities and preparing a coup. In April 1997, he initiated contacts with the Dashnak party to discuss its possible relegalization (see "RFE/RL Newsline," 4 and 7 April, 1997). HHD bureau member Martun Matevosyan told RFE/RL's Yerevan bureau on 22 September that the talks focused on relegalizing the party in Armenia, its possible contribution to resolving the Karabakh conflict, and domestic political stability.


National Democratic Union leader Vazgen Manukyan told journalists on 22 September that the National Accord bloc of opposition parties created last year to support his presidential candidacy is "dead," RFE/RL's Yerevan bureau reported. Manukyan said National Accord fell apart because of unspecified differences of opinion between its constituent members. Speculation about the bloc's imminent breakup has grown since two of its member parties, the Union for Self-Determination and the banned Dashnak party, recently embarked on a dialogue with the Armenian leadership. Manukyan said the National Democratic Union is currently increasing its membership and will focus on improving living standards. He added that the authorities are "retreating" from the platform of self-reliance in foreign policy, democracy, and the protection of human rights on which the 1988 pro-democracy movement came to power.


Presidential adviser Vafa Gulu-Zade told Interfax on 21 September that the 29 August Russian-Armenian treaty on friendship, cooperation, and mutual assistance does not correspond to the interests of Russia or the Russian people. He suggested that Russian President Boris Yeltsin was unaware of the contents of the treaty when he signed it and that it had been drafted by the Russian Foreign Ministry, where, he claimed, Armenians are "strongly represented." Gulu-Zade added that he hoped the Russian parliament will refuse to ratify the treaty. Turan on 22 September claimed that a group of Armenian officers is currently being trained in Smolensk to use sophisticated anti-aircraft systems, including some technology illegally supplied to Armenia by Russia since 1994.


Azerbaijan's Supreme Court on 22 September sentenced Tengiz Suleimanov to 12 years' imprisonment for espionage, Interfax and AFP reported. Suleimanov was arrested earlier this year while attempting to pass classified military information to the Iranian intelligence service. He was also convicted of theft of state property from the military unit in which he served.


Georgian Defense Minister Vardiko Nadibaidze told journalists in Tbilisi on 22 September that Georgian, NATO, and U.S officials are discussing the possibility of military exercises in southeastern Georgia, possibly under the aegis of NATO's Partnership for Peace program, Interfax reported. At the same time, Nadibaidze, who is widely regarded by the Georgian opposition as Moscow's stalking horse, affirmed that "Russia was and remains Georgia's major partner in military cooperation," according to ITAR-TASS. Meanwhile, the Georgian parliament has enacted legislation whereby Georgians eligible for military service who live outside Georgia may pay 2500 lari [$1,900] to avoid the draft. The law also provides for deferment of induction for students under the age of 24 and for village doctors and teachers, "Nezavisimaya gazeta" reported on 20 September.


The Uzbek Foreign Ministry released a statement on 22 September calling problems in Afghanistan "an internal affair" of that country, ITAR-TASS reported. The statement also said the Uzbek government made the correct decision in closing the bridge that connects the Uzbek city of Termez to the Afghan town of Khairaton, which is currently under siege by or in the hands of the Taliban religious movement. The Uzbek Foreign Ministry also called for an international contact group to be created that included representatives of the sides involved in the conflict, neighboring states, the U.S., and Russia. Uzbekistan also advocates negotiations aimed at forming a coalition government. It proposes such discussions be held under the aegis of the UN, with the participation of the Organization of the Islamic Conference.


Akezhan Kazhegeldin is currently "abroad" for medical treatment, Russian media and Reuters reported on 22 September. His duties will temporarily taken over by First Deputy Prime Minister Akhmetzhan Yesimov. According to Reuters, Kazhegeldin has been receiving treatment for "traumatic phlebitis." Interfax reported that Kazhegeldin is in Europe but did not specify where. Earlier this month, he revealed he had worked for the KGB during the Soviet era. Shortly after, parliamentary deputy Zamanbek Nurkadilov accused Kazhegeldin of using his position to acquire large shares in the Shymkent oil refinery. Yesimov said Kazhegeldin's trip does not mean he is resigning and that "there will be no government reshuffle."


Solidarity Electoral Action (AWS) leader Marian Krzaklewski, whose alliance won a plurality of seats in the 22 September elections, has said he should be named prime minister. President Aleksander Kwasniewski, an ex-Communist strongly opposed to the AWS, said on Polish Radio on 22 September that he has not decided who should be named premier. But he was quoted by "Gazeta Wyborcza" the next day as saying the AWS is most likely to form the new government. Meanwhile, Jan Krol, a Freedom Union deputy, told Polish Television that the AWS should head a coalition with his party and should have the premier's office. The Freedom Union finished third, behind the AWS and the post-communist Democratic Left Alliance. Final election results are expected on 24 September, but a new government may not be named for some time. The parliament does not reconvene until 20 October, and Kwasniewski then has two weeks to nominate a premier.


The Polish authorities have dropped all espionage charges against Ryszard Kuklinski, a Polish military officer who cooperated with the CIA from 1972 to 1981, PAP reported on 22 September. Kuklinski provided the U.S. with thousands of secret documents about Soviet and Warsaw Pact military plans. In 1981, he fled Poland and now lives in the U.S. Two years ago, the Polish Supreme Court lifted the death sentence that the communist regime had imposed in absentia on Kuklinski. Anti-communist groups in Poland have long demanded that Warsaw pardon Kuklinski for his activities.


Patriarch of Moscow and All Russia Aleksii II has ignited a firestorm of criticism during his ongoing visit to Ukraine because of his call for Church unity. Ukrainian Orthodox Patriarch Filaret told journalists in Kyiv that Aleksii's appeal for all Orthodox congregations in Ukraine to unite under pro-Moscow Kyiv Metropolitan Vladimir was an effort to resubjugate Ukraine. Meanwhile, Ukrainian Autocephalous Orthodox Patriarch Dmitriy told Studio One Plus One television program that he and his congregation "do not want to unite with the Russian Church."


Dmitriy Goldich, the first deputy minister of resorts and tourism in Crimea, died on 22 September of gunshot wounds sustained during an assassination attempt four days earlier, ITAR-TASS reported.


Swedish psychologist Bengt Schager has resigned from the three-nation commission investigating the 1994 sinking of the "Estonia" passenger ferry, in which 852 people died, BNS reported, citing the Stockholm newspaper "Svenska Dagbladet." Schager said he could no longer trust the commission because it has been too protective of the Estonian crew and has tended to interpret certain facts in their favor to avoid creating tension between the Estonian and other commission members. He also said that it is clear that safety standards were not observed on board the ferry. Last year, the commission's Estonian chairman resigned, saying that Swedish officials were withholding evidence. Some six months later, the head of the Swedish contingent stepped down after admitting he had lied to a journalist about a letter connected to the investigation.


Experts in Vilnius say that a report by the Russian Foreign and Defense Policy Council proves Moscow has changed its policy toward the Baltic States, according to Interfax. In an interview with the Russian news agency, Lithuanian parliamentary chairman Vytautas Landsbergis described the report--whose contents were summarized in the 22 September issue of "Lietuvos Rytas"--as a "probe to check the reaction to Russian policy [in] the Baltic States." He noted that several years ago, the council had published a report calling for "political moves" to prevent the Baltic States from joining NATO and the EU. "What we see now is a similar stance, only in milder form: there is weaker opposition to the Baltic countries' membership in the EU but categorical opposition to their integration into NATO," Landsbergis said.


Officials at the Ignalina nuclear power plant said they had to shut down the first reactor after the cooling system failed on 21 September, BNS reported. The closure came only hours after repairs to the reactor had been carried out. Viktor Shevaldin, the plant's director-general, said there was no increase in radiation levels either inside or outside the plant. He added that he expected the power station to be back on line within two or three days. According to BNS, the incident measured zero on the international nuclear events scale. Ignalina's two reactors are of similar construction to those at Chornobyl. The Ignalina plant is situated 60 kilometers from Vilnius and supplies about 80 percent of Lithuania's electricity.


The Council of Europe's Parliamentary Assembly said on 22 September that it is largely satisfied with the Czech Republic's progress toward amending laws since the fall of communism in 1989. But the assembly adopted a committee report criticizing a 1991 law banning former communist officials from holding key posts. The report also says that although the Czech Republic's current citizenship law has been substantially improved since last year, it still poses problems for ethnic minorities owing to an allegedly "discriminatory attitude" among some Czech bureaucrats. In other news, Czech officials begin talks in Brussels on 23 September on the Czech Republic's entry into NATO.


Slovak Nationalist Party (SNS) Chairman Jan Slota, speaking on Bratislava's Radio Twist on 22 September, defended remarks he had made the previous day at a joint news conference with French extremist Jean Le Pen. Slota had said that Hungarians are a threat to Europe and that their probable predecessors, the Huns, killed children and pregnant women. He had also declared that "what Americans and the EU present as democracy is dirt" and that "national minorities are only a tool of those cosmopolitans to cause war." Slota told Radio Twist that Hungary's policy, particularly toward Slovakia, is "insidious" and "evil." He accused Slovakia's Hungarians of wanting autonomy as a first step toward union with Hungary. Coexistence, one of Slovakia's ethnic Hungarian parties, announced on 22 September that it will sue Slota.


Slovak Prime Minister Vladimir Meciar told Slovak Radio on 22 September that regardless of whether Slovakia fulfills all EU demands, the union's stand on Slovak membership will not change. He said Slovakia "does not need psychotherapy but rather a real solution," which he defined as the EU inviting all states with which it has association agreements to start entry talks. Observers comment that Meciar's statement underlines that the government is unwilling to undertake any steps toward democratization.


South African Breweries, Ltd. (SAB) of Johannesburg, the world's fifth largest beer producer, has purchased a 97.6 percent share of the Saris brewery in Velky Saris, "Sme" reported on 23 September. The daily quoted Rudolf Mosny, the brewery's co-owner until recently, as saying the Dutch brewery Heineken's entry on the Slovak market has threatened Saris's standing as Slovakia's top brewery in terms of quantity, quality, and marketing. He said SAB intends to invest some $50 million in Saris over the next three to four years.


Gyula Horn, speaking in the parliament on 22 September, rejected the accusations of Smallholders' Party leader Joszef Torgyan that his cabinet is "continuing the inglorious policies of the Kadar era" and "committing crimes against the national interest" by neglecting Hungarian minorities abroad. Horn conceded that Slovakia's ethnic Hungarians have found it "increasingly difficult" to secure their rights in recent years. He also noted that there are "many sources of tension" between the two countries. At the same time, Horn stressed that Hungary is "ready to continue negotiations" with Slovakia because "it is not in our interest to search for an enemy or to isolate Slovakia from the process of Euro-Atlantic integration," Hungarian media reported.


Chief of Staff General Ferenc Vegh met with his Romanian counterpart, Constantin Degeratu, in Mehkerek, southern Hungary, on 22 September, Hungarian media report. They discussed accession to NATO, the planned Hungarian-Romanian peace-keeping battalion, and other aspects of bilateral military cooperation. Vegh said Hungary will continue to share with Romania its experience in European integration and to support Bucharest's efforts to join NATO.


The left-wing coalition headed by the Socialist Party is leading in vote counting for the 21 September parliamentary election. Despite boycotts by Kosovo Albanians and part of the Serbian opposition, turnout has been confirmed at 62 percent. The Serbian Statistical Office said on 23 September that the left-wing bloc will have 98 seats in the 250-strong parliament, the Serbian Radical Party (SRS) 80, and the Serbian Renewal Movement 45. The final election results are expected on 25 September.


None of the candidates in the 21 September presidential election won a majority, forcing a runoff between Slobodan Milosevic's ally Zoran Lilic and SRS leader Vojislav Seselj. With nearly 85 percent of the presidential vote counted, Lilic won 37 percent support, Seselj 28.5 percent and opposition leader Vuk Draskovic nearly 23 percent, "Nasa Borba" reported on 23 September. Opposition Democratic Party chairman and Mayor of Belgrade Zoran Djindic called for a boycott of the runoff elections Meanwhile, Draskovic has rejected any suggestion of resigning from the party leadership and said his Serbian Renewal Movement will not support any candidate in the second round, BETA reported on 22 September.


Johannes Linn, the World Bank's Vice President for CENTRAL AND EASTERN EUROPE, said in Hong Kong on 22 September that a rapid rescue program for Albania has been delayed, RFE/RL reported. Linn said that as part of the international donor effort, the bank has drawn up a $6 million program to audit, shut down, and dispose of the last of Albania's pyramid schemes. But he added that the approach envisioned in that program has been challenged in Albania's courts. He says, however, that the government is "absolutely committed" to getting rid of the schemes and will meet any necessary requirements. The IMF is currently working on a post-conflict assistance program, but one of its requirements is that the pyramid schemes first be shut down.


Opposition Democratic Party leader Sali Berisha has appealed for Albanians to continue their nationwide protests against the Socialist-led government, the "Albanian Daily News" reported on 23 September. Berisha said Albanians must organize protests across the country because "their children, property, and future have never been so threatened as now" by hefty taxes, poverty, smuggling, and the "physical elimination of political opponents."


In an interview with the daily "Azi" on 22 September, Foreign Minister Adrian Severin said that "two or three directors of large circulation dailies are agents of foreign countries and [that] two leaders of political parties...are also being financed from abroad." Severin noted that a few people posing as "great fighters for human rights are former informers of the Securitate." Some of those combating corruption are involved in illegal dealings, he added. Severin went on to say that as a member of the government, he has had access to documents substantiating those accusations. But he refused to mention names, saying only that they will "not remain confidential for long." Severin repeated those comments at a press conference the same day. The directors of the Romanian Intelligence Service and the Foreign Intelligence Service both responded to Severin's comments by denying having such information, RFE/RL's Bucharest bureau reported.


Ion Diaconescu, the chairman of the Chamber of Deputies, told journalists in Bucharest on 22 September that State Duma deputies with whom he recently met in Moscow would not necessarily oppose a possible reunification of Romania and Moldova, RFE/RL's Bucharest bureau reported. Diaconescu said the deputies condition such a step on a referendum carried out on both banks of the River Dniester, which separates the breakaway region of Transdniester from the rest of Moldova. Diaconescu said Russian Foreign Minister Yevgenii Primakov made clear that Moscow supports the territorial integrity of Moldova. Diaconescu also said reunification between Romania and Moldova will be possible only when Romania is an "economically attractive alternative" for the Moldovans. Observers note that the Transdniestrian leadership and its Russian supporters have used the "reunification danger" as an argument for promoting Tiraspol's independence.


Valerii Serov, arriving in Moldova on 22 September for a three-day visit, told reporters that the main purpose of his visit is to prepare the ground for a meeting of the joint Moldovan-Russian commission, RFE/RL's Chisinau bureau reported. He also said the time has come to fully clarify the problem of ownership of the assets of the Russian army in the Transdniester before the planned withdrawal of the army. Tiraspol claims it is entitled to a share of those assets. Serov met with President Petru Lucinschi, parliamentary chairman Dumitru Motpan, and Defense Minister Valeriu Pasat. On 23 September, he is scheduled to travel to Tiraspol and meet with the breakaway region's leader Igor Smirnov and Valerii Yevnevich, the commander of the Russian troops stationed there.


Petru Lucinschi told journalists in Chisinau on 22 September that the powers of the presidency should be extended to allow intervention in the economic reform process. Lucinschi also said he supported a mixed electoral system for the 1998 parliamentary elections. He warned that if the system of party lists used in the 1994 elections is retained, there will be no link between deputies and those whom they are supposed to represent. Lucinschi also said his recent visits to France and Italy should be regarded as an "integral part of Moldova's strategy of integration into a united Europe," Infotag reported.


The Constitutional Court on 22 September rejected an appeal lodged by 52 opposition parliamentary deputies to declare the law on opening communist-era secret police files unconstitutional, RFE/RL's Sofia bureau reported. The Socialist deputies claimed the law contravened the constitution and violated citizens' right. But the court did support the Socialists' claim that the law could jeopardize the ability of the president, the vice president, and members of the Constitutional Court to carry out their duties. It ruled that the files of the holders of those posts should not be opened. Under the law, the files of top officials--including deputies, cabinet ministers, court officials, and state media directors--will be made public, while citizens can apply to see their own files.


Freemasonry has been legalized again in Bulgaria after a 57-year ban imposed by the then fascist government, the Grand Master of the Bulgarian Lodge Ivan Stavrev said on 22 September. Citing Bulgarian media, AFP reported that a recent closed-door ceremony brought together some 200 Bulgarian freemasons.


by Michael Wyzan

The July floods in the Czech Republic have had major economic consequences. In addition to damage to lives and property, the disaster and the government's response to it will have unfortunate short-term macroeconomic ramifications. However, in the medium and long term, not all those ramifications will be negative.

Expandia Finance, a Prague-based brokerage, has done a detailed analysis of the effect of the floods on the Czech economy. In a report published in August, Expandia estimated flood damage at 50 billion crowns ($1.5 billion, or 3.5 percent of gross domestic product). Of that sum, 25 billion crowns accounted for damage in industry, 12 billion crowns in agriculture and forestry, 5.4 billion crowns in roads and railways, and 5 billion crowns in housing.

When assets used in production are destroyed or damaged, output will be reduced in the future, but the macroeconomic consequences of such reductions may be small and limited in duration. While Expandia estimates that 13-15 billion crowns worth of industrial production was lost (which could reduce GDP 0.9 percent to 1.1 percent), it adds that faster production growth in later months will make up for part of that loss.

Expandia expects crop damage to be slight, since overall foodstuff production will be higher than in 1996. The building industry will probably benefit later in the year from a surge in activity. Expandia is even more optimistic about the prospects in the medium term (the next three years), forecasting an increase in renovation of plant and equipment that is likely to add 0.7 percent to GDP annual growth.

However, it points out that much depends on how reconstruction activity is financed. If the government increases its expenditures--as it did by earmarking some 3 billion crowns for rebuilding infrastructure, assisting damaged enterprises, and subsidizing apartment building,--it will move the budget further into deficit. Expandia estimates that government will also have to increase its spending by 700 million crowns in 1998 to cover interest on the five-year "flood bonds," which went on sale on 1 August. Those increases in expenditures follow budget revenue losses totaling 10 billion crowns due to unpaid taxes from industrial companies and payments by state insurance companies.

Although the Czech Republic ran budget surpluses through 1995 and had only a tiny deficit in 1996, the state of the budget is a sensitive issue there. The Czech National Bank is concerned that attempts to fight inflation--still running at 9-10 percent annually-by tightening monetary policy will raise interest rates and attract increased financial inflows. Such inflows and outflows were a contributing factor to the turbulence in the foreign exchange market in the spring. Accordingly, the bank is pushing the government to run budgetary surpluses, which would lower interest rates, in order to fight inflation.

To an outsider, the Czech Republic's fiscal problems do not seem overly worrisome. Large capital movements are a fact of life for many countries in Central Europe, Latin America, and Southeast Asia, especially the most successful ones. Attempts to stave off such difficulties by running large budget surpluses will likely lead to a political backlash. Recent attempts in the Czech Republic to levy a special 13 percent income tax to help balance the 1998 budget have failed to gain support among deputies.

Expandia argues that the floods are unlikely to give a long-term boost to economic growth comparable to that in The Netherlands in the 1950s (after the dikes broke), since Czech products are not as competitive as Dutch ones. But the opposite may, in fact, prove the case. The gap between the productivity of old equipment destroyed in the floods and that of new machinery replacing it will inevitably be larger than in a normal market economy and will therefore provide a bigger growth boost.

In the short-run, jobs have been lost in companies that went out of business; but in the medium term, jobs in construction will increase. However, newly installed plant equipment is likely to require a smaller work force than did its predecessors. Accordingly, if the flooding expedites the process of replacing outdated equipment, it may accelerate the still moderate upward trend in Czech unemployment rates.

Expandia expects the foreign trade deficit to worsen slightly this year owing to increased imports of capital goods needed for reconstruction. However, it sees no long-term effects on the trade balance, since newly installed equipment producing export goods will be more efficient.

Expandia's view that the floods, especially in the medium and long terms, will have both positive and negative economic consequences is in accordance with economists' findings about one-time disasters of this type in developing countries.

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