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Newsline - November 3, 1998


In a letter to Prime Minister Yevgenii Primakov, State Duma deputies and members of the Yabloko faction, Sergei Mitrokhin, Yurii Shchekochikhin, and Anatolii Kuznetsov pose 16 questions about allegedly suspicious activities of members of his government. The letter, which was published in Russian newspapers on 3 November, asked whether First Deputy Prime Minister Yurii Maslyukov conducted business while a member of government, whether the government reached decisions regarding businesses founded by Maslyukov or his relatives, and whether Maslyukov awarded a license to the telecommunications company Vympelkom without that company having to compete with other firms. Similar questions were also posed about the activities of First Deputy Prime Minister Vladimir Gustov and Deputy Prime Minister Gennadii Kulik. The authors of the letter explain that they provided the questions in response to Primakov's request that Yabloko leader Grigorii Yavlinskii explain allegations of corruption within the government that he made in an earlier interview with the British "Daily Telegraph." JAC


Prime Minister Primakov took the charges in stride, quipping to reporters that Yavlinskii "did not join the government because he didn't have enough money for the post." On a more serious note, he said that Yavlinskii is suggesting that corruption is so endemic throughout Russia that it probably exists in Yavlinskii's own faction. Maslyukov labeled the charges a "provocation" and said payments between the Russian Space Agency and Vympelcom were rescheduled because of the economic situation in the country--not because of improper influence. Officials at Vympelcom also denied Yabloko's charges, saying that the allegation was the result of a "misinterpretation." While some Moscow-based analysts accused Yavlinskii of trying to start his presidential campaign with a splash, former Prime Minister Sergei Kirienko lent Yabloko his support, telling Ekho Moskvy that he was routinely offered bribes when a member of government. JAC


The "Moscow Times" reported on 31 October that regional governments are poised to take controlling shares in their largest banks. According to the newspaper, the city of St. Petersburg plans to assume more than 25 percent of shares in four leading banks, while Sverdlovsk Oblast plans to merge three local banks into one in which it will have a controlling stake. In a separate story on 3 November, the newspaper reported that Sverdlovsk is planning to obtain a 25 percent stake in Nizhnii Tagil Metal in exchange for a restructuring of the company's local tax debt and wage arrears. The newspaper concluded that such relationships may be destructive and cited the example of Tatneft in Tatarstan: "Over the past two years Tatneft has borrowed more than $1 billion on international capital markets, but some of these funds may have been diverted to pet projects of the government rather than the company." JAC


The U.S. and Russian delegations to talks on the shipment of U.S. meat, rice, and grain to Russia have delayed final signature on a protocol that was expected to have been signed on 2 November. "Noviye izvestiya" argued on 31 October that despite Russia's current agricultural crisis, Russian negotiators are in a good position to drive a hard bargain, since Russia "consumes 32 percent of pork exports and 41 percent of beef exports from EU countries" and 40 percent of U.S. exports of chicken legs. According to the newspaper, Deputy Prime Minister Kulik is insisting that Russia needs long-term credits to finance its food purchases. "Nezavisimaya gazeta" on 30 October compared U.S. chicken legs with their domestic counterparts and found them lacking. It described the U.S. frozen chicken legs as "kicking Russia in the stomach" and dealing a blow to the prestige of its government. JAC


Duma Security Committee Chairman Viktor Ilyukhin of the Communist Party told Interfax on 3 November that the START-II treaty is unlikely to be ratified unless the government guarantees that the single-warhead Topol-M missile replaces the RS-18 and RS-20 missile systems. Ilyukhin said that the Topol-M should be introduced within two years of dismantling the older missiles. Earlier, First Deputy Prime Minister Maslyukov advocated that the government build 35- 45 new Topol-M missiles (see "RFE/RL Newsline," 8 October 1998). JAC


Representatives to the Union of Russia and Belarus meeting in Yaroslavl on 2 November agreed to reorganize the union into a two-chamber legislative body. AP reported that the new body will pass laws relevant only to the union and is not intended to substitute for the two nations' own legislatures. The upper chamber of the new body will consist of legislators from the two countries, while the members of the lower chamber will be elected directly by voters in each country during national parliamentary elections, according to ITAR-TASS. Twenty-five seats will be reserved for Belarus and 75 for Russia. JAC


Yugoslav Deputy Prime Minister Vojislav Seselj, who attended the meeting, said that Yugoslavia wants to join the union and that "the freedom of Slavic peoples can be defended only by uniting." President of Belarus Alyaksandr Lukashenka was also enthusiastic, saying that Yugoslavia "has a favorable strategic situation and climatic conditions" and "would do Belarus and Russia much good from an economic and strategic point of view." Meanwhile, Anatol Malafeyeu, chairman of Belarus's Chamber of Representatives, expressed the hope that Primakov's appointment as Russia's prime minister would "deepen integration processes" between Russia and Belarus. JAC


The price of Gazprom shares soared more than 25 percent on the Moscow stock exchange following the government's announcement of its intentions to sell up to 5 percent of the company. The tender will take place before the end of the year, Deputy Prime Minister Vladimir Bulgak told Interfax on 2 November. Citing an anonymous source in the government, the news agency reported that the government will sell only 2.2 percent to 3 percent of Gazprom initially. "Kommersant-Daily" on 3 November argued that the government hopes that sale proceeds will help at least partly to avoid a default on sovereign debt. The newspaper added that although the devaluation of the ruble lowered the company's price tag, the government may be able to get $1 billion for a 3 percent stake because now Ruhrgaz, in addition to Shell and ENI, is an interested buyer. JAC


The Maritime Department of the Russian Border Guards has said that recent violations of Russia's state borders by Japanese fishing vessels are "a planned action," Interfax reported on 2 November. On 30 October, Russian border guards detained three fishing vessels off the Kuril Islands but released them after the crews promised to pay a $47,000 fine. Two days later, another eight Japanese vessels entered the area without informing the Russian border guards, thereby violating a bilateral fishing agreement signed earlier this year. The ships ignored border- guard radio signals, but the guards took no action. Interfax quotes an unnamed spokesman for the Maritime Department as saying the violations were "aimed to check the reaction of Russian border guards." BP


Russian engineers completed work on "Zarya," the first module of the International Space Station on 2 November, ITAR-TASS reported. "Zarya" is scheduled to be launched on 20 November. If all goes according to schedule, NASA will launch a U.S.-built module in December. So far, however, the schedule for the space station has experienced many delays. JAC


The Defense Ministry houses a group of specialists studying "paranormal phenomena," such as UFOs and occult practices, "Novaya gazeta" reported on 26 October. According to the journal, Major-General Aleksei Savin, who heads the unit, founded the group in the late 1980s at the behest of former General Staff Chief of Staff Mikhail Moiseev. The unit reportedly conducts experiments on humans, specifically military cadets. It also won support from the highest levels of the Defense Ministry, when some of its staff "predicted" the ascent of Anatolii Kvashnin to Moiseev's position. JAC


The Republic of Kalmykia has a new prime minister, Yurii Baturin, who also heads the INTEK construction company, which completed the building of Chess City in Kalmykia. Earlier, the Russian press reported that Moscow Mayor Yurii Luzhkov, who is Baturin's brother-in-law, despatched Baturin to help President Kirsan Ilyumzhinov finish Chess City when financing for the project dried up in the wake of a scandal that followed the murder of a journalist investigating official corruption in Kalmykia. JAC


Interviewed in "Komsomolskaya pravda" on 3 November, Aslan Maskhadov and Ruslan Aushev said CIS Executive Secretary Boris Berezovskii's attempts to secure the release of Russian presidential representative Valentin Vlasov and other Russian hostages are counterproductive. The two presidents criticized Berezovskii for circumventing them and trying to negotiate Vlasov's release directly with maverick field commander Salman Raduev, whom, they said, Berezovskii has provided with "more computers than some Russian intelligence services possess." In negotiating directly with Raduev, Aushev claimed, Berezovskii has driven up the ransom demanded for Vlasov from $4 million to $7 million. Vlasov was abducted on the Chechen-Ingush border on 1 May. Last month, Berezovskii denied paying ransoms to secure the release of hostages. Meanwhile, Chechen Deputy Security Minister Nasrudi Bashiev has announced the arrest of two persons suspected of kidnapping three Britons and a New Zealander in Chechnya last month, AP reported on 2 November, citing Interfax. LF


Lieutenant Akaki Eliava, who led the abortive insurrection in western Georgia on 19-20 October, has demanded the release of all his supporters arrested for their participation in the revolt, the resignation of President Eduard Shevardnadze, and official condemnation of the removal from power of former President Zviad Gamsakhurdia in 1991-1992, Interfax reported on 2 November. Eliava threatened a new military campaign against the Georgian authorities if those demands are not met by 15 November. Thirty- four people have been arrested to date for their role in the uprising, ITAR-TASS reported on 2 November, quoting Military Prosecutor Badri Bitsadze. LF


A delegation headed by deputy parliamentary speaker Yurii Bakhshian has concluded a three-day visit to Tbilisi, where it held talks with Georgian parliamentary speaker Zurab Zhvania and Minister of State Vazha Lortkipanidze, Noyan Tapan reported. Zhvania stressed that the dissatisfaction of the predominantly Armenian population of the south Georgian region of Djavakheti must not be exploited to undermine bilateral relations. The talks also focused on ongoing cooperation in the energy and transport sectors, including the Eurasian Transport and Energy Corridors, and on drafting bilateral programs for national security and cooperation with international organizations. LF


Several prominent Armenian political figures have said they intend to sue the Armenian Revolutionary Federation (HHD) for libel, RFE/RL's Yerevan bureau reported on 2 November. The politicians, who include former national security chief Davit Shahnazarian and Eduard Yegorian, who heads the Hayrenik parliamentary group, are among several associates of former President Levon Ter-Petrossian whom the HHD has accused of corruption and embezzlement (see "RFE/RL Newsline, 2 November 1998). Senior HHD member Gegham Manukian said on 2 November that his party has evidence to support its allegations of malpractice. LF


Representatives of more than 20 Azerbaijani political parties and defeated presidential candidate Ashraf Mehtiyev met on 2 November to discuss setting up a Movement for Democracy, Turan and RFE/RL's Baku bureau reported. The movement will campaign for new parliamentary, presidential. and municipal elections. Membership will be open to all those who do not recognize the legitimacy of the present leadership. LF


Azerbaijani President Heidar Aliyev will travel to Ashgabat shortly with a government delegation for talks with Turkmen officials on ownership of several Caspian offshore oil fields to which both countries lay claim, "Nezavisimaya gazeta" reported on 3 November. But Turkmen Foreign Minister Boris Shikhmuradov has made clear that Ashgabat will not compromise on the Kyapaz field and will raise the possibility of becoming a member of the international consortium currently developing the Azeri and Chirag fields, according to Turan on 2 November. LF


Aliyev on 1 November ordered the Azerbaijan State Oil Company SOCAR and the Azerbaijan International Operating Company (AIOC) to draw up by 12 November their recommendation on the optimum route for the so-called Main Export Pipeline for Caspian oil. Aliyev again rejected claims that the proposed Baku-Ceyhan route will cost up to $1 billion more than the alternatives. In a 2 November interview with Reuters, U.S. envoy for Caspian energy issues Richard Morningstar similarly cast doubts on the estimated cost of the Baku-Ceyhan route but made clear that the U.S. government will not provide funds for that project. Morningstar also said he does not consider it "critical at this point" for the AIOC to make a firm commitment to the Baku-Ceyhan route. He predicted intensive negotiations between Azerbaijan, Turkey, and the AIOC on how to fund the Baku-Ceyhan route. LF


Turkmenistan's Oil and Gas Ministry on 2 November announced that daily oil extraction has reached 20,000 tons, Interfax reported on 2 October. The ministry said that improved extraction methods will "guarantee" a total output of 7 million tons in 1998. That figure will grow to 10 million tons by the year 2000, the ministry said, adding that half of the total output will be exported. BP


Several bombs exploded in the southwestern city of Kurgan-Tyube on 3 November, ITAR-TASS and Reuters reported. One bomb went off outside the city's Interior Ministry building, killing one person who was in a parked car nearby. Bombs also exploded near other administrative buildings in the city at intervals of 20 minutes, but no other casualties are reported. Law enforcement officials describe the explosions as acts of terrorism. BP


Chairman of the Kyrgyz National Bank Marat Sultanov told a news conference on 2 November that the som is continuing to lose value because foreign investors are withdrawing money from the country, RFE/RL correspondents reported. Sultanov said the Russian financial crisis is also partly to blame for the decrease. Since July, the som has dropped from 17 to $1 to 24-25. Sultanov said that the National Bank has spent 12 percent of its hard currency reserves since August. He added that the state budget for 1999 will have to be revised. BP


The Ukrainian Foreign Ministry has protested what it called "territorial claims on Ukraine" made by the Russian State Duma last month, Reuters reported on 2 November. Georgii Tikhonov, head of the Duma Committee for CIS Affairs, had said during a debate on the Russian-Ukrainian treaty that "according to all domestic and international documents, Crimea's port of Sevastopol was never given to Ukraine." Other Duma deputies had supported that statement. "Ukraine decisively rejects any claims on the territorial unity of the state, in consideration of the fact that they do not contribute to creating an atmosphere of trust and mutual understanding between Ukraine and the Russian Federation," the ministry said in a statement. JM


Ukrainian President Leonid Kuchma on 2 November gave the government one week to draw up urgent measures to meet all current payments and cut wage arrears, ITAR-TASS reported. Meanwhile, some 500 coal miners from throughout Ukraine are expected in Kyiv on 3 November to picket the government building in order to protest unpaid wages. JM


The U.S. embassy in Minsk said on 2 November that Washington may consider Belarus's offer to provide a new residence for its ambassador (see "RFE/RL Newsline," 29 and 30 October 1998), Reuters reported. The embassy said the U.S. will view the offer only if the Belarusian government presents a "reliable legal guarantee of immunity for any future residence." It added that Washington currently has no plans to send its ambassador back to Minsk. "The American side has made it clear to the Belarusian leadership that this is not an issue about housing but about principles," the agency quoted an unnamed U.S. embassy official as saying. JM


Belarus's opposition newspaper "Naviny" has been robbed of four computers and a fax machine, Belapan and AP reported on 2 November. The computers contained the newspaper's archives, files, databases, and some 2,000 photographs. "I do not exclude that it was the work of secret services. Some valuable and more sellable things--monitor, compact disk player, and very expensive Japanese television set-- were left intact," "Naviny" chief editor Ihar Hermyanchuk told AP. He said the staff is now looking for somebody to lend them new computers, adding that the newspaper will not be closed. Last year, the newspaper, which at the time published under the name of "Svaboda," was banned for articles presenting the views of political opponents of Belarusian President Alyaksandr Lukashenka. It resumed publication after two months under its current name. JM


The cabinet on 2 November said it is prepared to amend its 1999 draft budget in order to reach a compromise with the opposition, ETA reported. According to the news agency, the government is ready to make the draft "more conservative." Government spokesman Daniel Vaarik said the cabinet will consult economic experts and find a compromise with the opposition, which had rejected the draft as "overly optimistic," before making any decisions. Earlier on 2 November, Vaarik had denied press reports that the cabinet was to consider resigning over the parliament's rejection of the draft budget (see "RFE/RL Newsline," 2 November 1998). JC


Latvia's Way, the Fatherland and Freedom party, and the New Party have signed an agreement on forming a coalition and supporting the prime ministerial candidate of Latvia's Way, Transport Minister Vilis Kristopans, BNS and Reuters reported on 2 November. "This deal is the core for a coalition--with 46 seats--which would work together to form a government," Andrejs Pantelejevs, chairman of Latvia's Way told journalists. He noted that "the worst case scenario would be a minority cabinet," adding that if the coalition cannot reach an agreement with the People's Party, which won last month's elections, it may turn to the leftist Social Democrats. President Guntis Ulmanis has said he will announce his candidate for premier on 3 November, when the new parliament is scheduled to convene. JC


Some 28 parliamentary deputies of various political stripes have signed an appeal to set up a commission that, among other things, would study alternative sources of energy to the Ignalina nuclear power plant, BNS reported on 2 November. Christian Democrat Jonas Simenas told a news conference that Lithuania would be able to produce as much electric and thermal energy as it needs without the Ignalina plant. While admitting that it is much cheaper and more "useful" to use atomic energy, he urged that preparations for closing Ignalina be started. Meanwhile at another news conference, Democratic Labor Party leader Ceslovas Jursenas said Lithuania is not ready to close the plant, which, he argued, is not "the real hindrance" to Lithuania's bid to join the EU. He suggested that European criticism of Ignalina stems from the perception that "we are their competitors with our cheap electric energy." JC


Polish President Aleksander Kwasniewski told the Berlin daily "Tagesspiegel" on 1 November that he is "skeptical" about the possibility of "total reprivatization" (meaning returning or compensating former owners for property confiscated by the state after the war). "Rzeczpospolita" reported on 3 November that Kwasniewski's statement has provoked criticism from politicians of the Solidarity-led coalition. "This is a very bad signal for the EU. We must remember that reprivatization is one of the conditions of our entry [to the EU]," commented Jan Lewandowski of the Freedom Union. Solidarity Electoral Action spokesman Piotr Zak said the statement was "improper," adding that Poland must return confiscated property "in kind, if possible...or in other forms." "Rzeczpospolita" suggests that Kwasniewski was mainly skeptical about satisfying compensation claims by German postwar expellees from Poland. JM


Iraqi Foreign Minister Mohammed Said al-Sahaf told the Iraqi parliament on 2 November that Prague has been warned that the decision to allow RFE/RL broadcasts to Iraq "will have a [negative] impact on economic and trade relations between the two countries," Reuters reported. RFE/RL began broadcasting to Iraq and Iran on 30 October. Both governments have criticized the new services as "interference" in their internal affairs. RFE/RL President Tom Dine has stressed the broadcasts will reflect the radios' core values of democracy: free expression, the rule of the law, and respect for human rights. MS


In a letter addressed to new Slovak Prime Minister Mikulas Dzurinda, Viktor Orban wrote "we hope that the inauguration of the cabinet headed by you will open new perspectives for the many-sided development of Hungarian-Slovak relations," Hungarian media reported on 3 November. Orban also wrote that the inclusion of ethnic Hungarian representatives in the Slovak government will facilitate ensuring the rights and needs of the Hungarian minority. Orban expressed his readiness to meet with Dzurinda in the near future. MSZ


Ljubco Georgievski, whose coalition won both rounds of the recent Macedonian parliamentary elections, said in Skopje on 2 November that his main goal as prime minister will be to promote "serious changes" in the domestic economy by ending corruption, encouraging private enterprise, and attracting foreign investment (see "RFE/RL Newsline," 2 November 1998). Georgievski added that he plans "no radical changes" in foreign policy. Vasil Tupurkovski, his coalition partner, said that the government will include ethnic Albanians and will therefore have a broad base for governing. He added that the government will work to improve inter-ethnic relations and that there will be "equal rights for all." It is unclear which ethnic Albanians he intends to include in the cabinet. Some 23 percent of Macedonia's population is ethnic Albanian. There are also sizable communities of Turks, Roma, and Serbs. PM


U.S. Ambassador to Macedonia Christopher Hill, who is Washington's chief envoy in the Kosova crisis, arrived in Prishtina on 3 November for talks with the Kosovar leadership. The previous day, he discussed a draft political settlement for Kosova with Serbian President Milan Milutinovic in Belgrade. Hill told reporters that the 2 November date mentioned in the agreement between Yugoslav President Slobodan Milosevic and U.S. special envoy Richard Holbrooke is not a "deadline" for obtaining a settlement, adding that he hopes to have a cut-off date "within weeks." Western diplomats believe that the first step toward that goal will be for diplomats to assist the various Kosovar groups in formulating a common policy among themselves, the "Financial Times" wrote on 3 November. Observers noted, however, that the plans that U.S. and Yugoslav officials have discussed fall far short of the minimum that most Kosovars are willing to accept (see "RFE/RL Bosnia Report," 21 October 1998). PM


French police arrested on suspicion of espionage Major Pierre Bunel, who worked at NATO headquarters in Brussels as a liaison officer between the alliance's Military Committee and the civilian authorities to whom the military report. The arrest took place in Paris on 1 November. The French authorities believe he provided Serbian agents with information about likely NATO targets in Serbia in the event that the Atlantic alliance launched air strikes against that country. It is unclear how Bunel's superiors came to suspect him of espionage, the "International Herald Tribune" wrote. He reportedly told French investigators that he spied out of sympathy for Serbia and not for money, according to "The Guardian." The incident is the latest in a series in which French military and diplomatic personnel have been suspected of abusing their positions to help the Serbs, the London-based daily added. PM


Deputy parliamentary speaker Rifat Rastoder appealed on 2 November in Podgorica to General Momcilo Perisic, who heads the Yugoslav army's general staff, to stop taking legal measures against young Montenegrins who ignored their induction notices during the recent conflict in Kosova. Rastoder also called on Perisic to issue an amnesty for those youths, RFE/RL's South Slavic Service reported (see "RFE/RL Newsline," 30 October 1998). Meanwhile in Ulcinj, U.S. Assistant Secretary of State for Population, Refugees, and Migration Julia Taft visited a refugee camp for refugees from Kosova. She had earlier observed the conditions facing displaced persons in the Serbian province. PM


Rory O'Sullivan, who heads the World Bank's mission to Bosnia, said on 2 November in Sarajevo that smuggling and customs evasion remain a "serious issue" in that country. He noted that officials in the mainly Croatian and Muslim federation as well as in the Republika Srpska have recently taken unspecified moves to crack down on smugglers, but he added that much smuggling still goes unpunished. O'Sullivan argued that international aid donors are unlikely to offer additional funds to Bosnia as long as corruption and smuggling remain rampant. Much of the illegal activity is carried out by mafia-like structures linked to the political and military establishments of the two entities. PM


SFOR peacekeepers completed work on restoring the grounds of the Sarajevo zoo and clearing the area of mines on 2 November. Bosnian officials will finish rebuilding the zoo by next spring and have received offers of animals from several European zoos. Director Safet Harbinja told Reuters that the zoo will contain only animals indigenous to the Balkans. All pre-war animals died or were killed during the three year-long Serbian siege of the capital, and a sniper killed one keeper in a well-publicized incident. PM


Customs officials in the port of Durres on 1 November found sophisticated sniper rifles, communications equipment, and ammunition in two containers that arrived from Switzerland aboard a Croatian ship, dpa reported. The containers were bound for northern Albania and also contained clothes, blankets, and mattresses for Kosovar refugees. Customs officials discovered the arms when, after one week, nobody had arrived to collect the goods. Albanian and Swiss authorities have started joint investigations. FS


The Italian company Cosmar has begun work on upgrading the Durres ferry terminal, ATSH reported on 1 November. The World Bank is financing the project to the tune of $11 million. World Bank Deputy President Johannes Linn said in Tirana the following day that the World Bank plans to grant Albania a total of $150 million over the next three years. It has already provided $300 million since 1992. FS


Italian customs speed boats arrived at the southern Albanian island of Sazan on 1 November as part of an 80-strong Italian police force that will patrol the southern Albanian coast(see "RFE/RL Newsline," 29 October 1998). Last month, the Italian and Albanian interior ministers signed an agreement providing for such a force. The patrols aim at stemming illegal migration and smuggling across the Otranto straits, ATSH reported. Elsewhere, Albanian authorities have expelled 62 illegal immigrants including 32 Iraqi and 25 Turkish citizens as well as five Palestinians. They had entered Albania last week from Greece and were arrested in a village near Fier, dpa reported. Albanian police, meanwhile, have increased road controls around the port of Vlora to catch illegal immigrants before they have a chance to embark. FS


Prime Minister Radu Vasile, who is on a three-day visit to France, said on 2 November that France's Eurocopter company is interested in acquiring a stake in the Ghimbav IAR aircraft company in Brasov. He said the French company, under whose license the PUMA helicopter was produced in Brasov between 1974 and 1996, wants to modernize and resume production of the PUMA military aircraft as well as produce helicopters for civilian purposes. Vasile said France's interest gives "a new dimension" to the talks now under way with Bell Textron Helicopters on the privatization of Gimbav- IAR, which must be concluded by 31 December. Also on 2 November, the government announced that final offers have been received from Italy' STET and Greece's OTE companies for stakes in RomTelcom. MS


Democratic Party chairman Petre Roman on 2 November said that his party has not "issued an ultimatum" to the ruling coalition but added that the coalition pledged to implement "concrete reforms" within six months of Radu Vasile's cabinet taking office. Roman said this was "the last chance" for the coalition to fulfill its mandate. The government on 2 November announced that the law on the restitution of nationalized housing and the protection of tenants will be debated in the parliament under regular procedure rather than under the "emergency procedure," to which the Democrats object. In turn, the Democrats said their draft on setting up a state company for the management of state-owned land will be withdrawn from the Senate's agenda "for two weeks." MS


The Moldovan national currency has dropped from 6.4 lei to 10 lei to the U.S. dollar, Infotag reported on 2 November. The devaluation came after National Bank chairman Leonid Talmaci announced at a meeting of a newly created government commission that the bank will no longer intervene to support the leu. Talmaci said that intervention by the National Bank since early September has resulted in the country's hard currency reserves dropping from $300 million to $200 million. He also said the decision to stop intervention is a "temporary measure." AP reported that the National Bank also decided to require commercial banks to sell 25 percent of their U.S. dollars to the central bank, up from 8 percent, as previously required. MS


Foreign Minister Nadezhda Mihailova on 2 November summoned Macedonian ambassador to Sofia Nikola Todorchevsky to protest against Macedonia's refusal to allow the entry of two Bulgarian journalists who intended to cover the 1 November elections, an RFE/RL correspondent in the Bulgarian capital reported. Mihailova said Macedonia was duty-bound to allow observers and journalists to monitor the democratic course of the ballot. BTA reported that the Macedonian authorities also barred former Bulgarian consul to Skopje Rumen Elenski from entering Macedonia on 31 October. MS


National Assembly Chairman Yordan Sokolov, returning from Turkey on 31 October, said Prime Minister Mesut Yilmaz now backs Plodviv, southern Bulgaria, as the base for the Balkan peace keeping force. Sokolov said Turkey is insisting only that the command of the force be rotated among participants, BTA reported. Speaking before a visit to Turkey scheduled for 4-6 November, Prime Minister Ivan Kostov expressed concern over the illegal immigration of Bulgarian Turks to Turkey, which he said was prompted by economic reasons, the Turkish Anatolia agency reported. He added that the influx into Turkey will stop in the near future if Bulgaria's economic situation continues to improve and if the country gains EU membership. MS


by Michael Wyzan

The growth of Croatia's GDP has slowed markedly this year, after soaring by about 6 percent annually during the previous three years.

In the first half of 1998, GDP grew by 3.4 percent, compared with 6.5 percent in 1997 as a whole. Forecasters are predicting that economic growth for the entire year will be at about the same rate as in the first half. However, the growth of industrial production has accelerated this year, with such production increasing at an annual rate of 6.9 percent during January- August, compared with 3.9 percent last year.

The slowdown reflects a conscious tightening of monetary and fiscal policy in an attempt to reduce the current account deficit, which rose from 4.5 percent of GDP in 1996 to a very high 12.5 percent last year. It is also a result of the turbulence on world markets, which will limit the growth of exports and make capital flows more volatile.

While GDP growth has slowed, retail price inflation is higher: the twelve-month rate to September was 5.8 percent, compared with 3.6 percent at the end of 1997. This increase does not reflect a rise in underlying inflationary trends, since it is due largely to the 2.4 percent inflation in January that resulted from the introduction of a 22 percent value-added tax (VAT) that month.

In a statement on the Croatian economy issued in July, the IMF identified rapid growth of wages and bank credit as well as an easing of fiscal policy as contributing to the surge in the current account imbalance in 1997. The fund is especially concerned about a lack of discipline among public enterprises, which have borrowed heavily at home and abroad, increased wages rapidly, and accumulated large overdue payables and receivables.

The authorities have had varied success in dealing with such matters this year. In terms of the local currency (the kuna), gross monthly wages in August were 14.5 percent higher than a year earlier. Although gross dollar wages are up only slightly over a year ago, at about $620 they remain the second highest among transition economies (after Slovenia). The unemployment rate remains very high at around 16 percent.

A broad measure of the money supply grew by less than 17 percent in the year to August, compared with almost 38 percent from December 1996 to December 1997. Tightened monetary policy early this year failed to slow banks' lending activities. And the Central Bank in April mandated that banks taking out foreign loans (or making loan guarantees for foreign loans) deposit with it a percentage of the loan (or guarantee) in kuna. These developments resulted in a slowdown in credit growth. In response to more difficult borrowing conditions on international markets, these measures were abolished on 14 October for loans with maturities of more than one year.

A strong revenue performance by the new VAT and growth in privatization revenues have contributed to an increase in central government budget revenues by 42 percent during January-July over the same period in 1997. During the same period, budget expenditures rose by only 25 percent. As a result, last year's deficit of about 1 percent of GDP has turned into a small surplus.

The motivation behind these fiscal and monetary measures was to rein in domestic demand and reduce the current account deficit. Those goals appeared to have been achieved: the deficit is currently projected to be 7-8 percent of GDP, after falling in the first half of the year by 8.9 percent, compared with January- June 1997.

During the first half of 1998, exports were $3.8 billion, virtually identical to the level from January-June 1997, while imports totaled $5.4 billion, down from $5.6 billion. While the trade deficit fell by 4 percent during the first seven months, it is expected to be down by 14 percent for 1998 as a whole. December 1997 saw a large surge in imports as part of a consumption boom that occurred immediately before the introduction of VAT in January.

So far, the authorities have not contemplated dealing with external imbalances by letting the kuna weaken. Between September 1997 and September 1998, it fell only from 3.55 to 1 German mark to 3.68. With a small foreign debt and little foreign portfolio investment, Croatia is seen by observers as not being particularly vulnerable to attacks on its currency.

Achieving sustainable rapid growth will depend on progress in various areas of structural reform, including improving bank supervision, privatizing large banks and enterprises, and completing trade reform in line with Croatia's application to join the World Trade Organization. An exercise in voucher privatization has just been completed, with seven investment funds and 11,500 individuals identified as "victims of war" bidding for shares in 471 companies. The author is a research scholar at the International Institute for Applied Systems Analysis in Laxenburg, Austria.