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Newsline - September 2, 1998


The IMF may delay the next $4.3 billion disbursement to Russia, scheduled to be released in September, Bloomberg reported. The agency cites an interview with Stanley Fisher, the fund's first deputy managing director, broadcast by CNN on 1 September. Fisher said, "It's clear that the Russians will have to do quite a lot before that money can be released. That means we have to consider the possibility that it will take longer than this month." He also said that "there's a lot of belief out there that they can do things in an unorthodox way. That's not really true, and our role is to help them as they realize they have to confront their problems." Also on 1 September, Reuters reported that the U.S. Senate adopted a non-binding resolution urging the IMF not to give Russia more money if the country's economic policies are significantly altered by the Russian Communist Party or offer markedly less free market conditions. JAC


President Boris Yeltsin on 1 September reaffirmed his support for acting Prime Minister Viktor Chernomyrdin, telling reporters: "I will be fighting to ensure that, within literally a week, the chairman of the government will be endorsed." The same day, the State Duma Council approved a proposal made by People's Power faction leader Nikolai Ryzhkov, to address the nation on why it rejected Chernomyrdin and will continue to do so. The Duma will vote on Chernomyrdin's candidacy on 4 September, as the Communist Party faction had requested, rather than on 7 September, as previously announced. JAC


According to Interfax, Chernomyrdin has directed the government to continue working, despite its uncertain status. He ordered the Finance Ministry to draft proposals for tax reform "immediately." On 2 September, he approved a proposal to reduce customs tariffs on imported goods. "Russkii telegraf" the previous day reported that acting Deputy Prime Minister Boris Fedorov has ordered the State Tax Service, of which he is also acting director, to apply the entire range of punitive measures allowed under the law against taxpayers who have been tardy with their payments. According to the "Moscow Times" of 2 September, the State Tax Service distributed a letter to schoolchildren warning them that they will be deprived of a free education if their parents do not pay their taxes. JAC


"Izvestiya" on 2 September reported that although the Russian Constitution stipulates that an election be organized so that a new Duma meets no later than four months after the old one's dissolution, the 1998 budget does not envision the large expenditure that an election would require. Therefore, the newspaper concludes, an election may be delayed until the next fiscal year. The newspaper also suggests that the Duma could prevent its dissolution by bringing impeachment proceedings against Yeltsin, which would give the deputies a reprieve, at least until the Federation Council considers whether to approve the Duma's decision. "Russkii telegraf" reported on 1 September that Aleksandr Kotenkov, presidential representative to the Duma, said that in the case of the lower house's dissolution, he "doubted" that new Duma elections could be held in the time stipulated by the constitution. JAC


According to ITAR-TASS on 2 September, Presidents Bill Clinton and Yeltsin have reached an understanding on exchanging information on ballistic missile launches by third countries. According to "The Washington Post," Moscow and Washington will immediately notify each other of any combat, test, or research launchings of long-, medium-, and short-range missiles from the territories of other countries. The agreement is expected to reduce future misunderstandings and/or tense situations, similar to the one that developed when Norway launched a research missile in January 1995. On 31 July 1998, North Korea tested a ballistic missile, which according to some reports, landed in Russian waters. Three days later, Interfax reported that Russian Foreign Ministry Spokesman Vladimir Rakhmanin said Russia "is already exchanging information with the US, China, Japan, and South Korea." JAC


Russian Public Television warmly appraised US President Clinton's speech on 1 September to the Moscow State Institute of International Relations. The newscaster said that "Clinton has displayed an amazing knowledge of Russian history. He kept quoting Pushkin and Chekhov, and it was obvious that he is very familiar with the economic situation in Russia." However, "Noviye izvestiya" on 2 September declared the summit "a meeting of two invalids" that was "pointless." It added that "both participants in the event are in political plaster, bound to their presidential seats exclusively by their own thirst for power." JAC


Vladimir Lukin, Duma International Affairs Committee chairman, told Ekho Moskvy on 1 September that "there is not yet a majority in favor of START-II in the Duma, because the issue has been excessively politicized." He added that he thinks the U.S. administration's attempt to link Clinton's visit with ratification of START-II is a "serious diplomatic mistake." However, he noted that START-II is advantageous to Russia because it reduces the U.S.'s nuclear potential and allows Russia to maintain parity with the U.S., despite its financial difficulties. Lukin added that after a new government has been installed, the Duma can address the treaty; "First we must depoliticize it, remove it from the arena of political squabbles." According to Interfax, Clinton said that he and President Yeltsin have already agreed on key provisions of START-III. JAC


First Deputy Finance Minister Vladimir Petrov, who was involved in IMF negotiations, was arrested on 1 September on suspicion of taking a large bribe, ITAR-TASS reported. According to the State Prosecutor's Office, Petrov is also suspected of using his position to benefit a commercial bank. JAC


According to ITAR-TASS, some 11,000 teachers in the Altai Republic went on strike 2 September to demand unpaid wages totaling 116 million rubles ($10.7 million). Interfax reported that the strike will last only three days, but if wages go unpaid the strike will resume in mid-September and October. Teachers at schools in Ulan-Ude, Buryatia, also began a three-day warning strike beginning on 2 September to demand back wages totaling some 7 million rubles. JAC


The Russian press continues to carry reports on the efforts of the Defense Ministry and Federal Security Service (FSB) to ready themselves for "mass disturbances." According to "Nezavisimaya gazeta" on 2 September, constant military maneuvers are being used to maintain the effectiveness of army units. The most combat-capable mobile units are intensively engaged in combat training. Airborne assault troops, marines, and aviation and ground force units are on constant combat readiness. "Noviye izvestiya" reported on 1 September that the FSB will set up a separate directorate for defense of the constitution. According to an FSB source, the service will not be ready for a coup d'etat or social upheaval, because it has been "very much weakened by the in-house reorganization." More than 2,000 counterintelligence officers are to be laid off. JAC


Dzhelav Gadjibagomedov, who is alleged to be a Wahhabi from the Dagestani village of Karamakhi, was arrested on 31 August on suspicion of murdering Dagestan's mufti Said- Mukhamed Abubakarov last month, Interfax reported, citing unspecified sources in Makhachkala. Gadjibagomedov is said to have been trained in Chechnya by Jordanian field commander Khottab, allegedly a sympathizer of the radical Islamists. "Izvestiya" on 25 August published Abubakarov's last interview, in which the late mufti expressed concern at the weakness of the republic's leadership and called for a clearly defined state policy with regard to Islam, which is the religion of the majority of Dagestan's population. In an interview in "Trud" on 2 September, former Russian Deputy Premier Ramazan Abdulatipov attributed the spread of radical Islam in Dagestan to appalling socio-economic conditions, high unemployment, and the indifference of the republic's leadership to those phenomena. LF


One person was killed and three injured in a gunfight on 1 September between North Ossetian police and the passengers of a car they flagged down close to the border with Ingushetia, ITAR-TASS reported. Elsewhere on the border, one ethnic Ingush was killed and a second seriously wounded when North Ossetian border guards opened fire for reasons that are unclear, according to Caucasus Press. During the night of 31 August-I September a bomb exploded on a window sill of the government building in the Ingushetian capital, Nazran, causing minor damage but no casualties. LF


Three men suspected of murdering four UN employees in central Tajikistan in July were taken by helicopter to Dushanbe on 1 September, RFE/RL correspondents reported. The three were taken into custody by forces of the United Tajik Opposition (UTO) and are reportedly former members of the UTO. A fourth suspect remains at large. The three men are being questioned, and formal charges are expected to be filed in the next 10 days. The UN special envoy to Tajikistan, Jan Kubis, has expressed his satisfaction at the arrest of the three men. On 2 September, he said he has begun working on plans to repatriate some 200 UTO fighters currently in northern Afghanistan (see "RFE/RL Newsline," 1 September 1998). BP


Tajik police have identified most of those involved in the 27 August attack on the mayor's office in the western Tajik town of Tursunzade, ITAR-TASS reported on 1 September. Police took three residents of that town into custody and learned from them the names of several others. Tajik authorities claim many have fled to another country and that a request has been made to law enforcement authorities in that country to apprehend the suspects. Tajik officials refused to name the country, but immediately after the shootings in Tursunzade, the Tajik government had said many of the culprits had escaped to Uzbekistan. Five people, including the mayor, were killed in that attack. BP


RFE/RL correspondents have confirmed reports by the Voice of the Islamic Republic of Iran that the home of UTO deputy leader Muhammadsharif Himmatzoda came under fire from a grenade launcher on 31 August. Three people were wounded in that attack. The Dushanbe home of the head doctor of the government's medical clinic also came under fire on 30 August, ITAR-TASS reported. The previous day, a Russian border guard officer was shot in the back in downtown Dushanbe and remains in a critical condition. On 1 September, an automobile driven by a Russian journalist was carjacked in downtown Dushanbe. The journalist was held in a basement on the outskirts of the capital but managed to escape after several hours. So far, no suspects have been apprehended for any of these crimes. BP


"Vremya MN" on 1 September published a list of potential trouble-makers that the Uzbek government has allegedly distributed to leaders in villages and city districts. Those leaders are to keep track of residents between 16-32 years of age who have left the city and to find out what they are doing now and how their families are supported. Others who are to be kept an eye on include shuttle traders traveling to Saudi Arabia, Turkey, Pakistan, or Iran; those who call upon women and girls to adhere to Islamic codes of conduct; anyone who has links with Wahhabis; anyone who has ever grown a beard; any man who has more than one wife; any family members of known Wahhabis who have reached 18 years of age and are not serving in the armed forces; and any girls who were married off before they turned 16. BP


The former spokesman for Turkmen President Saparmurat Niyazov was arrested on 1 September in Ashgabat on charges of embezzlement, RFE/RL correspondents reported. Durdumuhammed Gurbanov, who served as presidential spokesman from 1991-1994, is accused of mismanagement of funds and misuse of state property. Gurbanov, who has criticized the Turkmen government in the international media this year, has been branded a dissident by the Turkmen government. BP


The Movement for Democratic Elections and Democratic Reforms, which unites some two dozen opposition parties and NGOs, voted on 1 September to go ahead with plans to hold a demonstration on Baku's central Freedom Square on 5 September, despite the ban imposed by Baku Mayor Rafael Allakhverdiev, Turan reported. Allakhverdiev has also written to the leadership of the Azerbaijan Popular Front Party rejecting their request that the party be allowed to retake possession of its headquarters in central Baku. Allakhverdiev claimed that large quantities of arms and ammunition were found in the basement of the building, which, he said, proved that the premises were not used for purely political purposes. The party was evicted from the building in early 1994. LF


The Georgian Ministry of Health has advised residents of Tbilisi to boil all drinking water as a precautionary measure following 84 cases of amebic dysentery in Tbilisi last month, Caucasus Press reported. Two people died of the disease and another 30 were hospitalized. Investigations established that the disease is not being spread by drinking water but that salad herbs cultivated in southern Georgia were washed in contaminated water. Health Minister Avtandil Djorbenadze told journalists on 1 September that additional measures to monitor the quality of food on sale in Tbilisi will be introduced. LF


Ukrainian President Leonid Kuchma on 1 September said that the official exchange corridor of the hryvnya will be broadened, the Kyiv newspaper "Den" reported on 2 September. Kuchma explained that the government wants to shield the interests of Ukrainian exporters in Russia in the wake of the financial crisis in the neighboring country. The introduction of a new hryvnya exchange corridor was confirmed by National Bank Chairman Viktor Yushchenko the following day in the parliament. According to ITAR- TASS, financial experts think that the upper exchange limit should be raised to 2.45 hryvni to $1 as a minimum. The government previously pledged to maintain the national currency within the exchange corridor of 1.8-2.25 hryvni to $1 until the end of this year. JM


According to the Ukrainian Education Ministry, more than 320 schools did not reopen in Ukraine on 1 September as teachers launched a strike over unpaid wages, dpa reported. The teachers' trade union claimed that some 450 Ukrainian schools remained closed. Ukrainian Television on 1 September reported that total wage arrears to teachers exceed 400 million hryvni ($177 million). Most affected by the teachers' action are Ternopil, Chernihiv, and Kirovohrad Oblast, where teachers have not been paid for some six months. Teachers in Kherson are proposing a "forced job pause" to allow them to find temporary employment at kolkhozes to earn money for the winter, Ukrainian Television reported. JM


Belarusian Minister of Agriculture Ivan Shakola on 1 September said that bad weather has hit this year's grain harvest, Belapan and Reuters reported. So far, 77 percent of the crop has been harvested, compared with 92 percent in the same period last year. The total grain crop is expected to reach 5.8 million tons, 1 million tons less than in 1997. The average grain yield is 2.34 tons per hectare, down from 2.7 tons per hectare last year. Shakola announced that Belarus will double its feed grain imports this year to 1.5 million tons in order to compensate for the lost crops. JM


Belarusian Deputy Foreign Trade Minister Valeryy Sadokha has said Belarusian producers are finding it increasingly difficult to compete on foreign markets, Belapan reported on 1 September. He cited declining exports and a growing negative foreign trade balance. In the first half of this year, Belarusian exports to Canada fell by 67 percent, to Israel by 58 percent, and to Poland by 33 percent, compared with the same period last year. Belarus's negative trade balance with Germany reached $250 million, with Ukraine $226 million, and with Poland $70 million. Sadokha appealed to Belarusian embassies to do everything in their power to enhance foreign trade "under difficult circumstances of [Belarus's] international isolation." JM


The third-largest commercial bank in Estonia, Forekspank, has announced it is merging with the country's fourth-largest, the Investment Bank, ETA reported on 1 September. Under an agreement signed by the boards of the two financial institutions, Forekspank will have a 50.25 percent stake in the Investment Bank. With assets totaling 4 billion kroons (some $266.7 million), the new bank will be smaller than either Hansapank or Uhispank, which earlier this year merged with Hoiupank and Tallinna Pank, respectively. JC


The board of the National Harmony Party has issued a statement urging the party's supporters to vote for the enactment of amendments to the citizenship law, BNS reported on 1 September. A referendum on those amendments is scheduled to take place next month. The party's board said it understands the wish of Latvian citizens to have the referendum but described the vote as the result of "a campaign of misinformation [and] the distortion of the opinion of international organizations." Meanwhile, the alliance of the Labor Party, the Christian Democrats Union, and the Green Party is calling on Latvian citizens to vote against the referendum. The alliance opposes the amendment whereby all children will be granted citizenship regardless of their proficiency in the Latvian language. JC


Latvian National Bank spokesman Edzus Veins told ITAR-TASS on Tuesday that of the three Baltic States, Latvia has been most harmed by the Russian financial crisis. Latvian commercial banks have invested some 72 million lats ($120 million) in the Russian economy, he said. According to Riga's Russian-language newspaper "SM," Estonians and Lithuanians have invested far smaller sums. JC


Lithuania on 1 September suspended meat and dairy exports to Russia, ITAR-TASS reported. "The measure was taken mostly at the request of Russian customers" who are unable to pay owing to the ongoing financial crisis, a spokesman for the Lithuanian Agricultural Ministry told the news agency. Lithuania exports some 25 percent of its meat and dairy products to Russia, primarily to Moscow and St. Petersburg. JC


Polish Foreign Minister Bronislaw Geremek and his Hungarian counterpart, Janos Martonyi. said in Warsaw on 1 September that their countries are coping well with Russia's economic crisis, AP reported on 1 September. Geremek said this provides "new arguments in [both countries'] drive to join NATO and the EU." Martonyi supported the opinion by saying that "the crisis shows to the world that Poland and Hungary belong to the West." PAP reported the same day that both ministers failed to reach agreement on Hungarian grain imports to Poland. Following farmers' protests in June and July, Poland last month imposed higher customs duties on imported grain. JM


Poland's new penal code, which took effect on 1 September, abolishes the death penalty and adjusts criminal law and court procedures to the EU standards, Reuters reported. "All new measures are compatible with solutions adopted in Europe," Justice Minister Hanna Suchocka commented. The code scraps capital punishment, despite opinion polls showing that more than 50 percent of Poles object to this move. It introduces life imprisonment to replace the previous maximum prison sentence of 25 years in cases of especially brutal murders and in some cases of espionage. And it also introduces new categories of crime, including environmental pollution, money laundering, and theft of intellectual property. JM


RFE/RL President Tom Dine on 1 September said the station is "on schedule" to begin broadcasts to Iran this fall. He denied some Czech media reports that said the radios are postponing plans to begin broadcasts on 1 September. Last week, the Czech government announced it will permit RFE/RL to broadcast to Iran beginning 1 September, and a government spokesman said that through 31 December, the cabinet will review the "security and economic risks" posed by those broadcasts. The government also said that the U.S. must officially ask the cabinet's opinion on planned broadcasts to Iraq, also scheduled to begin this fall. Officials in Iran and Iraq have protested the planned new broadcast services. MS


Leaders of the Christian Democratic Party, the Freedom Union, the Civic Democratic Alliance, and the Democratic Union on 1 September agreed to jointly nominate candidates for the Senate and the local elections scheduled for 13-14 November, AP reported. The agency said the members of the new coalition fear that the Social Democratic Party (CSSD) and the Civic Democratic Party (ODS) may change the constitution if after the Senate elections they have a three-fifths majority in both chambers of the parliament. The new coalition's members fear in particular a move to change the proportional electoral system into a majority one. Christian Democratic Party leader Josef Lux called the new agreement "a fundamental breakthrough" that creates "a strong alternative" to the CSSD and the ODS. MS


CSSD spokesman Libor Roucek on 31 August said ODS deputy chairman Ivan Langer's threat earlier that day to withdraw from the agreement with the CSSD was "irrelevant." He explained that appointments to leading positions in state- owned companies are "not subject to the agreement" between the two formations. Roucek added, however, that "if the ODS raised the demand, I can see no reason for the CSSD and the ODS not to discuss it at their next meeting." Meanwhile, the daily "Mlada Fronta Dnes" on 1 September reported that the ODS owes the state some 2.5 million crowns ($76,000) in outstanding taxes. Langer said that different interpretations of the law are possible but that his party will "comply with the interpretation of the tax authorities." MS


Opposition Free Democrat parliamentary group leader Gabor Kuncze on 1 September said that the alleged illegal surveillance of Federation of Young Democrats- Hungarian Civic Party leaders is a "boomerang that has fallen on the head of Prime Minister Viktor Orban," Hungarian media reported. Kuncze said the governing coalition's reluctance to release alleged documents on the affair raises the suspicion that there are no documents to support Orban's allegations. Opposition representatives on the parliament's National Security Committee believe the government wants to postpone the investigation as long as possible. Laszlo Kover, minister without portfolio responsible for the civilian secret services, said the opposition's attacks are aimed at "crippling" the operation of the government. MSZ


U.S. President Bill Clinton said in Moscow on 2 September that he and Russian President Boris Yeltsin agree that the Serbian authorities must end repressive measures in Kosova. Clinton added that the two leaders also call on Belgrade to allow relief agencies greater access to the province and to pursue an "interim settlement" on Kosova's status. PM


In a statement in Belgrade on 1 September, Yugoslav President Slobodan Milosevic thanked the federal army and the Serbian special police for their "courage and patriotic sense of duty in crippling and bringing to a halt the activities of terrorist bandit groups" in Kosova, RFE/RL's South Slavic Service reported. After Milosevic met with U.S. Ambassador to Macedonia Christopher Hill, the Yugoslav leader's office issued a statement in which Milosevic called for urgent talks between Serbian and Kosovar delegations. Hill told reporters that "there is a possibility that the international community will send a forensic team to help with the identification of the remains" of 22 persons, which the Serbian authorities say they found in Klecka (see "RFE/RL Newsline," 1 September 1998). Hill added that whoever carried out the killings must be "caught, tried, and punished." PM


The Foreign Ministry issued a statement on 1 September calling for international intervention in Kosova to halt the bloodshed. The statement says that "developments in Kosova are becoming more complex and more alarming every day" and that "intervention by the international community, in all [possible] forms, should be fast and prompt to save the life of tens of thousands of innocent people endangered on a large scale by the flames of war and facing a humanitarian catastrophe." The statement accuses Serbian forces of indiscriminate attacks on civilians and stresses that "hundreds of thousands" of displaced people face food shortages, the threat of Serbian attacks, and the imminent onset of winter. The ministry also rejected Yugoslav charges that Albania supports "terrorism" in Kosova, saying the international community is aware who is "the aggressor and who is the victim in need of protection." FS


Montenegrin President Milo Djukanovic said in Podgorica that the Federal Republic of Yugoslavia may split up if the Belgrade authorities do not treat Montenegro as Serbia's equal, the Belgrade daily "Danas" reported on 2 September. He added that "the federal state will not break up because of Montenegrin separatism, but because [the federation has become] politically and economically rotten and because of the autocratic rule of one man," by which he meant Milosevic. Djukanovic warned that the federation faces a "dark future" unless Belgrade changes its policies to Podgorica's liking and that Montenegro's patience is running out. Djukanovic wants a greater say for his republic in federal affairs and the introduction of policies aimed at promoting market reforms, free trade, and open borders. He has also been critical of Milosevic's policies in Kosova. PM


NATO and Bosnian spokesmen said in Sarajevo on 2 September that an explosion killed at least one soldier of the mainly Muslim and Croatian federal army and wounded several others. NATO and federal military officials are investigating the blast, which took place in an arsenal at Vrela, northwest of Sarajevo. AP reported that the investigators believe the explosion was an accident. PM


Representatives of the OSCE, which is supervising the 12-13 September elections in Bosnia, removed the names of two candidates for the Republika Srpska parliament from the ballot on 1 September. The candidates, who belong to the Serbian Democratic Party, had displayed pictures of indicted war criminal Radovan Karadzic at a recent rally. Also in Sarajevo, the international community's Carlos Westendorp fired Mark Benkovic as mayor of Orasje because he tried to prevent the return of non-Croatian refugees to that town. Westendorp told Ante Jelavic, who heads the Croatian Democratic Community, to select a new mayor within two weeks. Elsewhere, U.S. special envoy Robert Gelbard told Jelavic to stop "involving" uniformed soldiers and officers at his election rallies. Gelbard called the involvement of the military in politics "a fundamental violation of all laws." PM


The joint parliament passed a law in Sarajevo on 1 September, according to which identical customs regulations will come into effect in January 1999 in both the Republika Srpska and the federation. In unrelated news, a spokesman for the United Nations High Commissioner for Refugees said that some 1,649 persons from Kosova have applied for political asylum in Bosnia since the crackdown began in that Serbian province February. The spokesman added that the total number of refugees from Kosova in Bosnia is "significantly higher," RFE/RL's South Slavic Service reported. PM


On 2 September in Lazarat, near Gjirokastra, "several hundreds" of special troops from Tirana cleared the main highway connecting Albania with Greece of a roadblock that heavily armed peasants had set up the previous day. Seven policemen were injured, and their colleagues are continuing to pursue some of the gunmen in the mountains. The peasants sought the release of three villagers arrested on 31 August for committing a range of crimes, including murder during the unrest in 1997, Reuters reported. Local police chief Islam Qebini said the suspects have since been released. Qebini charged that the latest incident is "a continuation of attempts [by the political opposition] to destabilize this area." Lazarat is a stronghold of the opposition Democratic Party, which gained the majority there in the June local elections. Villagers have repeatedly blocked the highway in the past, prompting the authorities in Tirana to send in special police forces. FS


On 1 September, Tirana police filed charges against Democratic Party leaders Sali Berisha and Genc Pollo for organizing a demonstration in Tirana the previous day (see "RFE/RL Newsline," 1 September 1998). Police had banned the rally, saying they feared "terrorist attacks." The Democrats are seeking the release from prison of six former government officials for alleged crimes against humanity during the 1997 unrest. FS


Reuters reported on 1 September that in a message addressed to an ecumenical meeting in Bucharest, Pope John Paul II said he thanked the Romanian president and its government" for the invitation extended in July to visit Romania and "I hope to be able to accept." The last part of the statement was not reported in the Romanian media. Romanian Orthodox Church Patriarch Teoctist told Rompres that a visit by the pope must be "well prepared" and that its timing is "a matter for the Holy Spirit." Also on 1 September, the Ministry of Education announced that Romanian pupils will have one hour of compulsory religious instruction a week. Parents will have to say in writing in which confession they want their children to receive instruction, Mediafax reported. MS


OSCE High Commissioner on National Minorities Max van der Stoel, who attended the ecumenical gathering in Bucharest on 1-2 September, met with Foreign Minister Andrei Plesu, Education Minister Andrei Marga, and chairman of the Hungarian Democratic Federation of Romania Bela Marko, RFE/RL's Bucharest bureau reported. After the meeting with Marko, Van der Stoel said he "needs more time for reflection" before he makes a statement on the controversy over the setting up of a Hungarian state university. Marko said the commissioner told him he "very much hopes" that the amendments to the education law will be passed by the parliament "in the form originally submitted." He also said that Van der Stoel is "well informed" and knows that the UDMR demands have been accepted and included in the ruling coalition agreement. MS


Speaking to journalists on the occasion of the eighth anniversary of Transdniester's "declaration of independence," separatist leader Igor Smirnov said he is not concerned about the fact that Transdniester's "statehood" has not been recognized by other countries. Smirnov said that this constituted "no hindrance" because the Transdniester "has achieved the main thing--economic independence." Therefore, Smirnov said, "political issues are of secondary importance, and their solution is only a matter of time." Smirnov said the Transdniester "has all the attributes of statehood, including regular armed forces." He accused the Moldovan leadership of being reluctant to and incapable of solving the conflict, saying that the present Moldovan government is trying to achieve "an internationalization of the conflict- -[the] Bosnian way," Infotag reported. MS


Michael Wyzan

Lithuania's economy generally receives less attention from foreign observers than its two Baltic neighbors. It is often seen as less reformed than Estonia and Latvia, although since last year its macroeconomic performance has been at least as strong as theirs.

A continuing distinction between Lithuania and the other two Baltic States is that it remains more dependent on trade with Russia: 22 percent of its exports went to that country during January-April, while the corresponding figure for imports was 24.4 percent. The corresponding figures for Latvian trade with Russia during the same period were 17.4 percent for exports and 13.6 percent for imports. Some 8.3 percent of Estonia's exports went to Russia, while 8.5 percent of its imports came from there.

Most Lithuanian macroeconomic indicators are highly favorable. GDP in the first quarter of 1998 was 6.9 percent higher than in the same period last year, reflecting an acceleration of economic growth from 1997's figure of 5.7 percent. Sales of industrial production were up by 9.4 percent during the first six months, almost double last year's 5.0 percent.

While production has boomed, consumer price inflation has subsided, reaching 6.1 percent in the 12 months to June, compared with 8.4 percent in the year to December 1997. Another favorable macroeconomic indicator is the budget deficit, which as of May was on target to meet the goal of 1 percent of GDP, which was agreed to with the IMF. That deficit fell from 4.5 percent in 1996 to 1.8 percent last year.

Wages have been booming, along with the economy: the average gross monthly wage reached $249 in May, compared with $199 a year earlier. This may explain why the unemployment rate has been higher during every month this year than in the corresponding month in 1997. However, by June the difference was negligible, with the rate that month of 5.5 percent only slightly above June 1997's 5.3 percent.

Large current account deficits have been a hallmark of the Lithuanian economy. As economic growth turned positive in 1995, the current account imbalance rose from $94 million (2.2 percent of GDP) in 1994 to $981 million in 1997 (a high 10.3 percent). This trend continued into the first quarter of 1998, when the deficit was $514 million, up $118 million on the same period last year.

Such deficits have been commonplace in rapidly growing transition economies, especially ones with fixed exchange rates; the litas has been pegged at four to the dollar under the currency board introduced in April 1994.

The Bank of Lithuania is currently undergoing a transition to a normal central bank, a three-stage process scheduled to be completed next year. For example, under the currency board, the bank is not allowed to provide overnight loans to commercial banks. In April, as part of the transition to central banking, it set the interest rate it will charge on such loans.

To retain confidence in monetary policy, the fixed rate for the litas against the dollar is to remain valid at least until 1999, when the currency will be tied partly to EU currencies; by the end of 2000, the litas will be pegged to the Euro.

Although the current account deficit is high, the Bank of Lithuania's foreign reserves have risen steadily, reaching $1.2 billion in June (further augmented by privatization proceeds in July), compared with $939.6 million in June 1997. Another encouraging sign is the rapid rise in foreign direct investment, which was a cumulative $1.1 billion at the end of June, compared with. $727.6 million in June 1997.

The IMF's Executive Board in July praised the government for increasing excise taxes, improving tax collection and the budget process, privatization successes in banking and telecommunications; and creating an Energy Pricing Commission. The board called for further fiscal tightening to limit the growth of expenditures and to put the Social Security Agency on a firmer footing, especially by raising the retirement age.

These are the standard recommendations that the fund would make to any successful economy in transition. A more interesting question is how vulnerable Lithuania will prove to contagion from the financial turbulence in East Asia and especially Russia. Large current account deficits under fixed exchange regimes are often an indication of such vulnerability.

The key issue is whether Lithuania will be able to manage the transition to central banking under a fixed exchange rate or whether it will be forced to allow its currency to weaken, as the Czech Republic did in spring 1997 and Russia on 17 August 1998. In this context, Lithuania's high trade dependence on Russia is worrisome, since the weaker ruble will probably further increase the Baltic State's already large trade deficit with that country. The author is a research scholar at the International Institute for Applied Systems Analysis in Laxenburg, Austria.