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Newsline - February 11, 1998


Following maneuvering by Russian diplomats at the UN and the Russian State Duma's decision to limit the number of passengers on a plane bound for Baghdad, the UN on 10 February gave permission for the plane to continue its journey to the Iraqi capital. Only 30 of the 207 Duma deputies and journalists who originally boarded the plane will now make that journey. The aircraft, which is also carrying humanitarian aid, had been sitting on a runway at Yerevan airport since 8 February waiting for UN clearance. BP


Despite UN clearance, the plane had still not taken off from Yerevan airport by 1:00 p.m. CET on 11 February. Earlier that day, Duma speaker Gennadii Seleznev blamed Vladimir Zhirinovsky, the leader of Liberal Democratic Party of Russia, for further delays, ITAR-TASS reported. On 10 February, Zhirinovsky had said that "we are ready to [cut the number of passengers]" even though "it would be a humiliation." But on 11 February, Zhirinovsky attempted to bring 125 people on board, prompting the Armenian Foreign Ministry to refuse the plane permission to take off. ITAR-TASS reported that Zhirinovsky is insisting that all 125 people be allowed to fly to Iraq. BP


Russian President Boris Yeltsin and Italian Prime Minster Romano Prodi released a joint statement on the Iraqi situation following their talks in the Italian capital on 10 February, ITAR-TASS reported. The two leaders said there are "indications that the crisis can be resolved by diplomacy" but added that "it is mandatory that Iraq fulfill the UN resolutions in allowing inspections of all its territory." The statement called for intensifying diplomatic activity and said that if UN Secretary-General Kofi Annan were to visit Iraq, he could play a role in finding a solution to the crisis. BP


Following his talks with Italian Prime Minister Prodi, Yeltsin met with Pope John Paul II for nearly an hour on 10 February, an RFE/RL correspondent in Rome reported. The Vatican's press service said the meeting was held in a "very cordial atmosphere." The two men met for the first, and only other, time in December 1991. Yeltsin's spokesman Sergei Yastrzhembskii told reporters that Yeltsin and the pope discussed the situation for Catholics in Russia and that John Paul thinks Catholics "do not encounter any obstacles" in Russia. Last year, the pontiff appealed to Yeltsin not to sign a controversial religion law (see "RFE/RL Newsline," 18 July 1997). Yeltsin vetoed that law but signed a revised version in September. LB


Yastrzhembskii said Yeltsin and Pope John Paul did not discuss problems in relations between the Russian Orthodox and Roman Catholic Churches, RFE/RL's correspondent in Rome reported on 10 February. He added that the two men also refrained from discussing a possible trip to Russia by the pontiff. Before leaving for Italy, Yeltsin told journalists that he planned to invite John Paul to visit Russia. But a spokesman for the Russian Orthodox Church said on 6 February that no meeting between the pontiff and Patriarch Aleksii II can take place until the two Churches settle outstanding disputes, such as Russian concerns about the situation for Orthodox believers in western Ukraine. The pontiff and Aleksii were scheduled to meet last June, but that meeting was called off (see "RFE/RL Newsline," 13 June 1997). LB


Finance Minister Mikhail Zadornov on 10 February warned that if the government's proposed tax code is not adopted by mid-1998, tax reform will be delayed for another two years, an RFE/RL correspondent in Moscow reported. Zadornov noted that comprehensive tax reform is unlikely to be adopted in 1999 or 2000, when parliamentary and presidential elections are scheduled. He added that the new code "is a very big symbol for investors and failure to adopt it will delay economic growth," AFP reported. Zadornov said the code would cut the number of taxes from at least 50 to 29, simplify tax collection rules, and "scrap taxes throttling industrial production." The profit tax would also be reduced. LB


Deputy Finance Minister Mikhail Motorin told journalists on 10 February that the proposed tax code would reduce the overall tax burden on the economy by 60 billion rubles ($10 billion) or some 2 percent of GDP, an RFE/RL correspondent in Moscow reported. But "Kommersant-Daily" argued on 11 February that the proposed code would increase the tax load on most individuals by 3-5 percent. The newspaper noted that the code would maintain the value-added tax of 20 percent on most goods and maintain or raise excise duties on alcohol and tobacco products, gasoline, and some automobiles. (Unlike most taxes, VAT and excise duties are virtually impossible to evade since they are included in the prices of goods and paid at the same time as the goods are purchased.) Furthermore, "Kommersant-Daily" added, the new code would not reduce income tax rates. LB


"Moskovskii komsomolets" alleged on 11 February that U.S. money helped finance Yeltsin's expensive re-election campaign in 1996. The newspaper charged that in March 1996, $500 million in $100 bank notes was sent as a diplomatic shipment to the U.S. embassy in Moscow. Officials from the embassy told the newspaper that the shipment was planned to ensure that there were enough new $100 bank notes to meet demand in Russia. (The U.S. changed the format of the $100 bills in late 1995.) But "Moskovskii komsomolets" argued that if that were true, the money could have been stored at the Russian Central Bank rather than at the embassy. It claimed the $500 million was quickly "acquired by large Russian banks," which "played an active role in the Yeltsin campaign." Russian law prohibits candidates from accepting contributions from foreign donors. "Moskovskii komsomolets" is considered close to Moscow Mayor Yurii Luzhkov. LB


The State Duma Council on 10 February voted to delay consideration of the Russian-Ukrainian friendship treaty signed last May, "Kommersant-Daily" reported on 11 February. The Duma was scheduled to consider the treaty on 6 February, but Duma CIS Affairs Committee Chairman Georgii Tikhonov of the Popular Power faction told the newspaper that the treaty will not be debated in the lower house of the parliament before March. "Kommersant-Daily" argued that the delay was inspired by the Russian Foreign Ministry. Unnamed sources in the Duma Foreign Affairs and CIS Affairs Committees told the newspaper that the Foreign Ministry supports postponing ratification until after the Ukrainian parliament has ratified the agreement on dividing the Black Sea Fleet. The Ukrainian parliament ratified the friendship treaty last month but has yet to consider the agreement on the fleet. LB


Air Force Commander Anatolii Kornukov announced on 10 February that a commission investigating the 6 December crash of a military cargo plane in Irkutsk has concluded that engine failure caused the disaster, Interfax reported. Nearly 70 people were killed when the huge An-124 plane crashed into an apartment block shortly after takeoff. Speculation initially focused on a poor mixture of fuel as the possible cause of the disaster (see "RFE/RL Newsline," 10 December 1997). But Kornukov said three of the plane's four engines shut down because of defective engine design and the failure of high-pressure compressors. He added that engine failures had previously occurred in An-124 planes but that such problems had not led to a crash. Kornukov said the planes will be examined and equipped with new engines if necessary before their use is resumed. LB


Also on 10 February, Air Force Commander Kornukov announced that 122,000 military personnel will be discharged as a result of the upcoming merger of the Air Force and Air Defense Troops, "Izvestiya" and "Kommersant-Daily" reported on 11 February. That figure amounts to 45 percent of the total personnel and 40 percent of the troops currently serving in the Air Force and Air Defense Troops. Those to be discharged include 24 generals in the Air Force Command. Kornukov, who was recently appointed to head the Air Force (see "RFE/RL Newsline," 21 and 23 January 1998), said the merger will be completed by the end of this year and will save more than 40 billion rubles ($6.6 billion) by 2003. LB


The identity of the suspect recently arrested in connection with the October 1994 murder of journalist Dmitrii Kholodov remains unknown. While the Prosecutor-General's Office declined to name the suspect, Interfax identified him as Yakov Popovskikh, allegedly a former colonel in the Main Intelligence Department (GRU) of the General Staff (see "RFE/RL Newsline," 10 February 1998). However, both a GRU spokesman and the press service of the Defense Ministry on 10 February denied that anyone named Yakov Popovskikh has been discharged from the GRU. "Kommersant-Daily" on 11 February identified the suspect as Pavel Popovskikh, a retired colonel who served as an intelligence officer in the Airborne Troops. But "Nezavisimaya gazeta" speculated the same day that all the reports about Popovskikh are false and that the arrested suspect is, in fact, a high-ranking officer in the General Staff. LB


Saratov Oblast Governor Dmitrii Ayatskov says Russia's krais and oblasts currently enjoy fewer rights than the country's republics. In an article published in "Nezavisimaya gazeta" on 11 February, Ayatskov assailed various forms of "discrimination" against geographically based krais and oblasts, as opposed to republics, each of which has a titular nation and flag. He argued that the constitution guarantees equal rights for all regions and accused the Constitutional Court of "neglecting its duty" to interpret the constitution. He also claimed that the law on parliamentary elections does not guarantee equal rights for voters. Ayatskov expressed regret that Federation Council Speaker Yegor Stroev "does not attach significance" to the current discrimination against oblasts. In fact, Stroev has criticized Russia's regional policy, in part because, he says, it creates inequalities among regions (see "RFE/RL Newsline," 20 January 1998). LB


Saratov Governor Ayatskov announced on 10 February that the local airport will not accept special flights carrying federal officials to Saratov unless those flights have been cleared with him, ITAR-TASS reported. He said government ministers, State Duma deputies, and other high-ranking federal officials should coordinate with the governor in advance about visits to Saratov Oblast. An unnamed official in Ayatskov's administration told ITAR-TASS that "not all visits by bureaucrats are conducive to socio- economic stability in the region, and often their statements go against the activities of the oblast government." Last fall, Ayatskov issued an order prohibiting heads of raions in the oblast from leaving the town without notifying him, according to a Saratov journalist taking part in the November 1997 conference in Seattle, Washington, of the American Association for the Advancement of Slavic Studies. LB


Numerous world leaders, including the U.S., Russian, Abkhaz, Turkish, Kazakh, and Armenian acting presidents, have telephoned with Georgian President Eduard Shevardnadze to express outrage over the 9 February attempt on his life. The Russian, Armenian, and Chechen Foreign Ministries issued statements condemning the assassination attempt. Shevardnadze himself said it was a "miracle" that he survived the second attempt on his life. At the same time, he confirmed his intention to serve Georgia "until the end." In a bid to qualify his 9 February accusation that "the hand of Russia" may have been involved, Shevardnadze said the attack was a "well planned and prepared military operation" by forces that "cannot forgive" the Soviet invasion of Afghanistan and the fall of the Berlin Wall" and are seeking to prevent both the export of Caspian oil via Georgia and the implementation of the TRACECA transport corridor project. LF


Georgian Security Minister Djemal Gakhokidze told Interfax on 10 February that the assassination attempt was prepared outside Georgia but that some Georgian citizens participated. Interior Minister Kakaha Targamadze said that the 10- 15 attackers arrived in Georgia separately and unarmed. The Georgian commission formed to investigate the attack has established that Visamudin Djangaliev, the Dagestani Chechen killed by one of Shevardnadze's bodyguards, was a member of the Confederation of Peoples of the Caucasus and had fought as a volunteer in the force that the confederation sent to support Abkhazia in its war against Georgia in 1992-1993, an RFE/RL correspondent reported from Tbilisi on 11 February. Meanwhile, Russian Foreign Ministry spokesman Gennadii Tarasov has rejected speculation that the assault was launched from the Russian military base at Vaziani, 30 kilometers outside Tbilisi, AFP reported. LF


Vahan Hovanissian, a leader of the opposition Armenian Revolutionary Federation (Dashnaktsutyun), was released from prison on 10 February, Armenian and Russian media reported. Hovanissian was sentenced in December 1997 to four years in prison on charges of calling for the violent overthrow of the Armenian leadership (see "RFE/RL Newsline," 15 December 1997). On 9 February, the Armenian Ministry of Justice lifted the ban that former President Levon Ter-Petrossyan imposed on the party in December 1994. Hovanissian told journalists following his release that the political situation in Armenia is "excellent [and] healthy" and added that his party will decide shortly whether to propose him as its candidate for the 16 March presidential elections, Noyan Tapan reported. But RFE/RL's Yerevan bureau reported on 10 February that the party is likely to back the candidacy of Prime Minister and acting President Robert Kocharyan. LF


Prime Minister Nurlan Balgimbayev on 10 February announced that his country will suspend privatization in the oil and gas industries, Interfax reported. Balgimbayev said the move is necessary until the government has selected a "strategic partner" for the national oil company. He denied that Kazakhstan is unable to fill quotas for oil to the Caspian Pipeline Consortium project, noting that the country last year produced a record 27 million tons of oil and expects that amount to grow to 170 million tons by 2020. He admitted that there are differences between the consortium's partners but said he hoped the 11-12 February meeting in Moscow will resolve some of them. BP


Yeryan Utembayev, the chairman of the Agency for Strategic Planning and Reform, said GDP grew 2 percent last year to reach 1.68 trillion tenge (about $22 billion), Interfax reported. Food production grew by 28 percent, ferrous metals by 24 percent, and natural gas by 20 percent. Inflation last year reached 11.2 percent (17 percent had been forecast). However, AFP reported on 2 February that the Finance Ministry released data showing production decreases of 17.5 percent in the oil refining sector, 14.7 percent in electricity, 29.8 percent in mechanical engineering, and 34.3 percent in the chemical industry. According to the same data, 55 percent of the country's industries made no profit in 1997. BP


The Tajik government on 11 February released from jail170 people, mostly opposition supporters, RFE/RL correspondents in Dushanbe reported. The United Tajik Opposition claims there are still more than 1,000 of its supporters in government jails. It also stresses that it has released all its government captives. Meanwhile Tajik President Imomali Rakhmonov and UTO leader Said Abdullo Nuri met on 11 February in an attempt to finalize which ministries will be allocated to UTO members. BP


Leonid Kuchma told a group of businessmen in Kyiv that privatization must resume, AFP reported on 11 February. Kuchma decried the parliamentary freeze on the privatization of state assets and pledged to end the government's monopoly on energy. On 9 February, the cabinet had announced it will sell 40 percent of the country's largest oil refinery in March. It said that presidential decrees would be used to get around the parliamentary ban on privatization. Kuchma also said that great efforts will be made to reduce barter trade in Ukraine and the black economy. PB


Anatolii Adamishin, Russian minister for cooperation with the CIS states, met with Ukrainian officials on 10 February to conclude drawing up details of a 10-year program on economic cooperation, ITAR-TASS reported. Adamishin held talks with Prime Minister Valery Pustovoitenko and Deputy Prime Minister Serhei Tyhypko in an effort to finalize a draft agreement scheduled to be signed by the Russian and Ukrainian presidents when they meet in Moscow next week. Adamishin said the two sides have created "an unusual document" that established "favorable conditions" for improved bilateral trade and cooperation. He added that he hoped Ukraine will take "a more active part" in the work of the CIS. PB


A Belarusian Arbitration Court has revised a ruling against the Soros Foundation, an RFE/RL correspondent in Washington reported on 10 February. The court said the foundation must pay $28,000 in fines, adding that its property will be confiscated. After receiving a $3 million fine in September for allegedly not paying various taxes, the foundation shut down its Minsk offices (see "RFE/RL Newsline," 4 September 1997). The government had also accused foundation workers of involvement in opposition political activities. A spokesman for the Soros Foundation said in Washington that it is encouraged by the court's decision. PB


The Belarusian government said on 10 February that the number of registered drug addicts in the country has increased four-fold since 1992, Belapan reported. A Ministry of Health official said nearly 3,500 addicts are registered but that the real number of drug users is probably closer to 17,000. The official said Belarus does not have a long-term rehabilitation center for drug addicts. PB


The Swedish government has approved the delivery of used weapons and military equipment to the Baltic States, ETA and BNS reported on 10 February. The deliveries will include anti-tank and anti-aircraft weaponry as well as jeeps and armored personnel carriers. Some of the armaments will be donated , while another part will be sold for a symbolic price, Swedish Foreign Minister Lena Hjelm-Wallen said. "The technical equipment to be sent to the Baltics is meant for training purposes and cannot be used in combat," Hjelm-Wallen added. JC


The government on 10 February approved the principles of a national integration policy, ETA reported. An integration program is to be drafted within the next few months and implemented next year. The main goals of the program include a significant decrease in the number of people without citizenship, increased possibilities for acquiring Estonian citizenship, and an improved knowledge of Estonian among aliens. The government foresees the education system playing a major role in the integration process and stresses that the integration program must be debated and approved by politicians and the general public alike. JC


Latvian President Guntis Ulmanis has sent a letter to the parliamentary Commission on Foreign Affairs urging lawmakers to admit that Latvians participated in genocide against Jews during World War Two, Interfax reported on 10 February. "The historical truth is that there were Latvians who participated in the Holocaust and there were Latvians who helped Jews and hid them in their houses," Ulmanis said. He added that he plans to meet with Latvians who hid Jews during the Nazi occupation. The previous day, the director of the Simon Wiesenthal Center had told "Diena" that Latvian society is reluctant to admit that "numerous Latvians" collaborated with the Nazis. Ulmanis is scheduled to visit Israel on 22-23 February. JC


The foreign ministers of the Czech Republic, Hungary, and Poland said in Washington on 10 February that any delay in the U.S. Senate's approval of NATO expansion would "send the wrong signal" to other nations that want to join the alliance. Hungary's Laszlo Kovacs said such a delay would also discourage reforms in those countries and encourage extremists in Russia. Poland's Bronislaw Geremek commented that a pause in NATO expansion after the admission of the three new members would "play into Russian hands" at a time when Moscow is gradually becoming part of European security arrangements. President Bill Clinton will formally ask the U.S. Senate on 11 February to approve the expansion of the alliance. Meanwhile, the U.S. has officially confirmed that it has asked the three states to support a possible military operation against Iraq. MS


Deputy Foreign Minister Radek Sikorski said that Poland would send an anti- chemical and biological warfare unit to the Persian Gulf in the event of a U.S.-led attack on Iraq, Reuters reported on 10 February. Sikorski said the decision was made at a cabinet meeting after U.S. Secretary of State Madeleine Albright had requested a pledge of aid from Polish Foreign Minister Bronislaw Geremek in Washington the previous day. Sikorski stressed that Warsaw hopes there will be no military conflict, but he said Poland's commitment to send such a unit is "an expression of solidarity with U.S. efforts" to make Iraq abide by UN resolutions. PB


Vaclav Havel on 10 February told journalists that the possible participation of Czech forces in military action against Iraq would serve a "fundamentally political purpose." "If we want others to guarantee our safety, then we must be ready to guarantee the safety of others in turn," he said. Havel added that he doubted that "Czech fighter planes would be attacking Saddam Hussein's palace" but noted that he believed "we are capable of providing some kind of support logistics." MS


Havel said at the same press conference that the Civic Democratic Alliance (ODA) must "press" its 1995 donors to allow their names to be made public (see "RFE/RL Newsline," 10 February 1998). He said that he admired ODA chairman Jiri Skalicky for wanting to keep his promise to the anonymous donors to keep their names secret but failed to understand why the donors insisted on anonymity. Havel also said he favors changing the present electoral system to a combined, proportional- majority one. At present the Chamber of Deputies is elected using a proportional system and the Senate using a majority one. MS


The Constitutional Court has ruled that the government violated the constitution by refusing to include in last May's referendum a question on whether the country's president should be elected by popular vote, RFE/RL's Bratislava bureau reported. The opposition had collected 350,000 signatures in favor of including that question, along with three others on accession to NATO. The Interior Ministry had ruled, however, that including the question would be unconstitutional. MS


The third round of Slovak presidential elections is to be held on 5 March, three days after President Michal Kovac's mandate runs out, AFP reported, quoting parliamentary chairman Ivan Gasparovic. In other news, the German authorities on 10 February officially asked the Czech Republic to extradite Michal Kovac Jr., the son of the outgoing Slovak president, CTK reported. Kovac Jr. is suspected of having helped cheat a Slovak company in 1992 (see "RFE/RL Newsline," 5 and 6 February 1998). MS


The National Bank of Hungary and the Central Statistics Office have announced that, in the first 11 months of 1997, the 4,396 companies with foreign participation invested some 69.3 billion forints ($346 million). That is twice the amount during the same period in 1996, "Napi Gazdasag" reported on 11 February. The U.S. is the largest investor in Hungary with 28.5 billion forints (or 41 percent of total foreign investments), followed by The Netherlands, France, and Germany. MSZ


Foreign Minister Paskal Milo said in Ljubljana on 10 February that Albania wants a peaceful resolution of the Kosovo dispute. "We hope it will not come to an armed conflict in Kosovo as that would have catastrophic consequences that would weigh upon all of the Balkans.... Pressure [by the Yugoslav authorities] on the Albanians in Kosovo proves that Belgrade is sticking to its old policy and mentality and that it lacks the will to find a new approach.... We do not support any armed groups that want to start a fight in Kosovo and are against all terrorism, be it Serbian or Albanian." PM


Spokesmen for the Democratic League of Kosovo, the main ethnic Albanian political organization in the province, have said Serbian police try to intimidate or provoke Albanians in Srbica on a daily basis, BETA reported on 10 February. Serbian police have resumed patrols on the Srbica-Klina road, but regular bus traffic has not resumed. Local Serbs also told BETA that the situation in Srbica and nearby Kosovska Mitrovica is tense. In recent weeks, the clandestine Kosovo Liberation Army has maintained a strong presence in the area. PM


Alija Izetbegovic, the Muslim member of the joint presidency and its current chairman, protested to the French government on 10 February over the reception received by Republika Srpska President Biljana Plavsic the previous day (see "RFE/RL Newsline," 10 February 1998). Izetbegovic charged that Plavsic was treated like a head of state, which, he added, showed that France favors the Serbs over Bosnia's other ethnic groups. Izetbegovic stated that France has displayed "arrogant behavior typical of a great power toward a state that is fighting for its survival." PM


The Bosnian Serbs cannot afford to lose Brcko, Prime Minister Milorad Dodik told the Vienna international arbitration commission on that strategic town on 10 February. He has said repeatedly in recent days that Brcko must remain in Bosnian Serb hands if his government is to survive. Also on 10 February, Plavsic told the Vienna commission that Brcko is vital for the survival of the Bosnian Serb state. Ejup Ganic, the president of the mainly Croatian and Muslim federation, said in Vienna, however, that the international community "cannot reward genocide by bringing in [Dodik] and saying "yes, there was genocide here, but here is a nice guy.'" Brcko had a Muslim and Croatian majority before the 1992-1995 war but is now almost completely Serbian owing to "ethnic cleansing." PM


Yugoslav President Slobodan Milosevic, Dodik, and a number of Serbian and Bosnian business leaders agreed in Belgrade on 10 February to promote cooperation in metallurgy. Some $20 million in unspecified foreign loans will be used to develop a partnership between Serbia's Sartid mills in Smederevo, the iron mill in Zenica in the mainly Muslim and Croat federation, and the Ljubija mines near Prijedor in the Republika Srpska. Milosevic recommended that Montenegro's Nis iron mill be included in the partnership in the future. Elsewhere in Belgrade, workers in 14 metallurgical plants went on strike, an RFE/RL correspondent reported from the Serbian capital. PM


Louise Arbour, the Hague-based war crimes court's chief prosecutor, called upon Yugoslav Justice Minister Zoran Knezevic in Belgrade on 10 February to change legislation in order to permit the extradition of indicted war criminals to The Hague. PM


Negotiations have been completed between the Croatian government and the U.S. Bechtel Corporation on the financing of the key Zagreb-Dubrovnik highway, an RFE/RL correspondent reported from the Croatian capital on 10 February. Work will begin this fall on the first segment, which will connect Zagreb and Sisak. The highway will then cut across northwestern Bosnia to the coast. PM


An EU official said in Zagreb on 10 February that Brussels has increased its support for the independent media from $1.76 million in 1997 to $2.94 million in 1998. The official said that goals include setting up a nationwide independent television network and establishing a newspaper distribution system independent of the governing Croatian Democratic Community (HDZ). The HDZ currently controls all television broadcasting, most radio stations, most periodicals, and the newspaper distribution system. PM


Undersecretary of State Thomas Pickering urged visiting Albanian President Rexhep Meidani on 10 February to "utilize the non-partisan nature of his office to reach out to all Albanian political forces, promoting constructive dialogue and opposition participation in the affairs of government and development of a constitution," a spokesman said in Washington. The Albanian president then left for Turkey, where he will spend three days accompanied by a large political and economic delegation. PM


Albania seeks foreign advice as well as investment, Prime Minister Fatos Nano told foreign ambassadors and representatives of the World Bank and the IMF in Tirana on 10 February. "We want to know your ideas, advice, and suggestions about what we should improve quicker, do better or that we lose no more time--and funds." Nano added that his country appreciates the aid it has received, but he stressed that "direct private investments are the injections that will revive this country more quickly and better." Representatives of the World Bank said the bank will provide a $10.25 million credit to provide guarantees to foreign investors against "political risks." PM


A joint session of the Romanian parliament on 10 February approved the nomination of five new ministers proposed by Premier Victor Ciorbea, RFE/RL's Bucharest bureau reported. A sixth minister, Mihai Sorin Stanescu, who was originally nominated by the premier, withdrew his candidacy after two parliamentary commissions recommended against approving his nomination as secretary of state with ministerial rank at the Ministry of Defense on grounds of his unfamiliarity with military affairs. Stanescu, a National Liberal Party (PNL) member, said he had to withdraw owing to pressure from the National Peasant Party Christian Democratic (PNTCD). In a related development, 15 PNL senators sent an open latter to PNL Chairman Mircea Ionescu-Quintus protesting PNTCD "dictates" on nominating new ministers and demanding that the relations between the two parties be discussed at a PNL National Council meeting on 21 February. MS


Sources at the Moldovan Ministry of Defense have told an RFE/RL Chisinau bureau correspondent that negotiations are under way with the U.S. on the delivery of military equipment to Chisinau. The deliveries are to be part of the second installment of payments for the U.S. purchase last year of 21 Moldovan MiG-29 planes. The second installment totals $40 million, as did the first installment. Moldova will also receive medical equipment, computers for its educational institutions, and "special equipment" for the Interior and Security Ministries. In other news, Lieutenant-General Nicholas Kehoe, the deputy chairman of NATO's Military Committee, ended a three-day visit to Moldova on 10 February. He met with Defense Ministry officials to discuss cooperation within the Partnership for Peace Program. MS


Petar Stoyanov on 10 February met with President Bill Clinton at the White House, an RFE/RL correspondent reported. Clinton later told journalists that "historic changes" have taken place in Bulgaria over the last year and that Stoyanov has played a "key role" in them." Under Stoyanov's leadership, Clinton said, Bulgaria has "aligned itself firmly" with "the family of democratic nations" and "moved forward" in implementing "difficult economic reforms," strengthened civil institutions, and stepped up its fight against organized crime. Stoyanov said he and Clinton discussed the role of Bulgaria in the Balkans. He expressed hope that Bulgaria will be a strong candidate for NATO second-wave expansion and pledged that his country will be an "equal, reliable and stable partner" of the U.S. MS


Following his 10 February meeting with Bulgarian President Stoyanov, Clinton launched what he called the "Southeast Europe Action Plan," an RFE/RL correspondent in Washington reported. The plan is designed to expand U.S. relations with Bulgaria, Romania, Macedonia, and Slovenia and aims at closer economic, political-military, and law- enforcement cooperation between the U.S and those countries. A statement issued by the White House said the plan will promote greater regional cooperation and will aim at setting up bilateral and multilateral groups among those states as well as with the EU. MS


by Stefan Korshak

In Ukraine, conventional wisdom has it that managers of enterprises must thoroughly re-educate themselves in capitalist ways before foreign investors will come up with cash. But the recently privatized Donetsk Iron and Steel Works (DISW) enterprise has found another way.

The steel it makes is in demand around the world. After coming through the Soviet collapse in better shape than most other steel mills, DISW now has a foreign backer helping it plan for the future.

The mill has been operating for more than 100 years. The present directors took over in 1994, when enterprise after enterprise in Ukraine's "smokestack sector" was going under. Immediately after independence, DISW not only kept afloat but thrived by supplying enterprises throughout the CIS.

Geography helped DISW. The iron ore, coke, pellets, concentrates, and refractors needed to convert iron ore into pressed sheets and rolled pipe are available in abundance in surrounding regions of the country. Thus, when CIS borders went up and customs duties were imposed, DISW did not need to pay such duties to import raw materials. Just about the only input that the Ukrainian steel industry, in general, and DISW, in particular, have lacked in recent years is power. The situation was stable until 1994, when the state began phasing out electricity subsidies. About the same time, hyper-inflation hit, meaning that not only did the company have to draw down its financial resources to maintain production but the economy in which it operated was thrown into chaos.

Imposition of new tariffs and value-added tax in CIS countries cut into earnings as well. Worse still, smaller operators in the West began to complain about the volume of cheap Ukrainian steel pouring into their home markets. European and U.S. politicians began talking about "level playing fields" and "dumping."

The approved business school solution in 1996 would have probably been to sell everything, downsize 80 percent of the employees, and either open a smaller, more efficient mill, or invest capital resources into government Treasury bills. But since at the time the government owned DISW, liquidation was not an option for top managers.

Ukraine's State Property Fund (SPF) has applied several approaches toward converting a government company into a private one. Usually, the bigger the company and the more likely its product could have a military application, the larger the stake the SPF orders the government to maintain. DISW qualified on both counts for a large government stake.

In 1996, the SPF handed down a privatization decision for the plant whereby ordinary citizens got 40 percent of shares and the government 20 percent. The remaining 40 percent went onto the market as a single-share bloc. The competition winner was Autoaliance-Doverie, whose majority shareholder is British MetalsRussia Ltd. For $50 million, the Hong-Kong-based steel manufacturer and trader got 40 percent of the Donetsk works. Already a provider of investment money for Russian steel plants, MetalsRussia has, so far, pumped operating capital totaling $9 million in equipment and $17 million into DISW.

The task for both DISW and MetalsRussia management has been to find a niche on the international market for a large-capacity steel factory, relatively inefficient in energy and raw materials usage.

The restructured enterprise altered its approach to foreign markets, focusing on export to Southeast Asia. Manufacturers in places like Singapore and Bangkok, who have no domestic steel industries to protect, want cheap steel.

One portion of the MetalsRussia cash investment is going into machines to make Donetsk steel more marketable. But besides making better steel, DISW must make its product cheaper, which, above all, means reducing the energy cost per ton of steel. Smaller Western mills make competitive steel largely because their energy costs are relatively low. Such an operation in Ukraine would not only throw a lot of workers onto the unemployment line but would put miners of raw materials out of work.

Part of MetalsRussia's investment has gone into energy-saving projects, like overhauling and upgrading DISW's Electric Furnaces. That leaves the problem of finding markets for DISW's cheaper, better-quality product.

A global company with steel interests worldwide, MetalsRussia, through its parent company Sakhavria Group Thailand, has opened up an existing market for DISW products. Owning factory shares in sites like Pakistan, Russia, India, and Ukraine, the foreign interest links DISW's products into the international market for steel. In theory, the future for DISW, and firms like it, looks rosy. The product is competitive. Foreign capital has been tied into domestic manufacturing. Salaries are paid on time. And the Ukrainian government is interested in the company's success. The author is a Kyiv-based journalist who regularly contributes to RFE/RL.