Baltic Report: February 19, 2001

MERI CRITICIZES SLOW DEVELOPMENT OF NATIONAL DEFENSE.
In a speech on the 81st anniversary of the Tartu Peace Treaty, President Lennart Meri on 2 February criticized the pace of the country's national defense development, BNS reported. Noting that NATO will decide next year on the admission of new members, he said that Estonia must now fulfill the promises it has made.

RUSSIAN COMMUNIST PLEDGES HELP TO ETHNIC RUSSIANS.
Russian Communist Party leader Gennadi Zyuganov said on 2 February that the Estonian government is conducting "a policy of destruction of the republic's northeast which is mostly populated by Russians," ITAR-TASS reported. He called on Moscow to use economic pressure to defend "the national interests" and interests of Russian "compatriots" in Estonia.

BANK LOANS GROWTH AT DANGEROUS LEVEL.
The Bank of Estonia said on 29 January that the 30 percent growth in loans issued by Estonian commercial banks last year could lead to serious imbalances in the future, ETA reported. The combined loan portfolio of Estonian commercial banks surged last year to 34.13 billion kroons ($2 billion) at the end of December from 26.6 billion kroons at the end of 1999.

ESTONIA'S GROWTH FUELED BY DOMESTIC CONSUMPTION.
Estonia's economy grew by 7 percent in the third quarter of 2000 year-on-year, according to the Statistics Agency of Estonia, ETA reported on 1 February. Commenting on that increase, the Bank of Estonia noted that private consumption during the third quarter was up 13.3 percent -- the biggest increase ever. But the central bank also expressed concern that the spending rate was unsustainable because investments fell during that same quarter. According to BNS, the central bank statement cited "[t]he issue of investments is still on the agenda, i.e, whether the present level is sufficient to ensure sustainable development." Imports rose by 27.6 percent during the third quarter of 2000, and exports of goods and services kept pace, growing by 27.7 percent. The Finance Ministry announced that Estonia's budget deficit for 2000 was 601.6 million kroons ($35.3 million) or 0.72 percent of GDP.

A PORTRAIT OF THE TYPICAL ESTONIAN HOUSEHOLD.
The Statistical Office of Estonia released 1999 data on the lifestyle and habits of Estonians on 30 January which show that 84 percent of Estonian families live in an apartment or house that they own and that they spend 34 percent of their household income on food. An average Estonian family also spends 1.75 percent of its total income on flowers and 2.63 percent on gardening. Andres Patzig, managing director of the Estonian Flower Association, told ETA that elsewhere in the world the percentage of family income spent on flowers is close to zero.

ESTONIA COULD JOIN EU IN 2004.
Estonia and Poland could be the next two countries to join the European Union, gaining membership in 2004, analysts from Skandinaviska Enskilda Banken said in a report issued on 31 January, ETA reported. Estonia's economy is expected to grow by 5.5 percent in 2001 and by 5 percent in 2002. Latvia's economy should grow by 4.5 percent in 2001 and 5 percent in 2002. The growth in Lithuania is forecast to be 3.5 percent and 4.5 percent respectively.

RULING COALITION NOMINATES MERI FOR NOBEL PRIZE.
Prime Minister Mart Laar and the chairmen of the government coalition parties will submit the name of President Lennart Meri to the Nobel Prize Committee in Oslo, ETA reported on 30 January.

ESTONIAN-FINNISH POLICE COOPERATION SCORES SUCCESS.
A joint Estonian-Finnish police unit named FinEst has broken the back of an international gang of criminals which had for years run a region-wide narcotics and prostitution network in Estonia, Finland, and Sweden, "Postimees" reported on 1 February. The arrests began in Tallinn, Helsinki, and Stockholm last August and involved dozens of individuals. The FinEst team was formed after Finland's Interior Minister Kari Hakamies publicly criticized Estonian law enforcement as corrupt and incapable of preventing extensive drug smuggling into Finland. The Finnish government later allocated funds for the establishment of a joint narcotics squad last May.

WILL ESTONIAN RAILWAY PRIVATIZATION DE-RAIL?
The privatization of state-owned Eesti Raudtee (Estonian Railways) has broken down because of confusion as to whether the winning bid for the tender has a strategic investment partner or not, ETA reported on 30 January. The U.S. Union Pacific Railroad announced on 29 January that it had nothing to do with the bid offered by Rail Estonia, the winner of the privatization tender, even though "Postimees" had reported on 26 January that it was the strategic partner of the Rail Estonia consortium. The runner-up in the privatization tender, Baltic Rail Service, is considering suing the Estonian Privatization Agency over the process, while EPA announced that it may suspend the process until 14 March, ETA reported on 29 January. In a related event, the engine drivers of Edelaraudtee, the passenger rail service subsidiary of Eesti Raudtee, staged a one-hour warning strike on 30 January protesting the company's plan to replace passenger rail service with bus service on several routes to southeast Estonia, ETA reported. The strike disrupted rail traffic throughout the Eesti Raudtee sytem for half a day. The government on 30 January offered not to cut the rail passenger routes, if Edelaraudtee accepts a lower subsidy.

* The Estonia-NATO Society, a non-profit organization, was established in Tallinn on the initiative of 39 public figures to promote the alliance's goals and educate the population about the benefits of NATO membership, BNS reported on 2 February. The society elected an 11-member council chaired by Ambassador Kalev Stoicescu.

* President Lennart Meri signed a law extending the reduction in the value added tax on heating to 5 percent for another five years, ETA reported on 30 January. The law, passed on 17 January, remains controversial because it creates a budget gap for the government of some 100 million kroons ($5.3 million). Prime Minister Mart Laar said he had hoped that Meri would veto the legislation.

* The Estonian government used 301 mllion kroons it recovered from bankrupt EVEA Bank and Maapank to fill its budget gap in 2000, BNS reported on 29 January. Foreign Ministry chancellor Aare Jarvan said that the money paid back from the banks restored the treasury reserves which had been partly depleted to cover the current account deficit, and had not violated any agreements Estonia has with the International Monetary Fund.

* "Aripaev" reported on 1 February that data on sold and imported fuel in Estonia over the last year shows that the state lost one billion kroons ($60 million)

* The Estonian government has granted local police and the security services the right to monitor telephone calls and email in criminal cases, ETA reported 2 February. The new measures come into force 1 March. The monitoring of communications, by a limited number of government organizations, is only allowed in first- or second-degree criminal investigations. The data link and communications companies will be reimbursed for their costs in assisting law enforcement agencies.

* Two leading chemical plants in Estonia, "Silmet" and "Viru Keemia" warned on 1 February that the steadily rising environmental taxes will force them to close down production, the daily "Postimees" reported. The Silmet plant, which refines rare earth metals, has been granted an extension to reduce its water pollution levels by July 2001, but the company claims this leaves them too little time to meet the stricter levels issued along with their newest license. Failure to comply may result in fines of more than 40 million kroons ($2.3 million) per year. According to Ministry of Environment estimates, Estonia will need some 26.38 billion kroons ($1.5 billion) to fulfill its environmental obligations to the European Union during 2000-2013, ETA reported on 25 January.

* The Ida-Viru county government has written to the Environment Ministry protesting against a draft law which proposes to raise environmental taxes by 20 percent annually until 2013, ETA reported on 1 February. Industrial enterprises in Ida-Virumaa currently pay 80 percent of all environmental taxes in Estonia. The county government calls for all the environmental tax revenues from Ida-Virumaa to be redirected back to the county during the next five years to address the major pollution problems within the county.

* Vattenfal, one of the largest energy firms in the Nordic countries, on Tuesday bought 99.95 percent of the shares in the Parnu city heating firm, "Parnu Soojus," ETA reported on 31 January. The agreement makes Vattenfal the biggest heat energy producer in Parnu, considered one of Estonia's resort towns and whick functions symbolically as Estonia's capital during the summer months. Vattenfal issued a statement saying it bought the city-owned energy complex because it uses the highest ratio of biodegradable fuels like peat in bio-mass in Estonia. "Parnu Soojus" generated 163 gigawatts of heat in 1999 with 48 million kroons ($2.8 million) of income.

* Raivo Vare, chief executive of "Pakterminal," one of the largest operators at the Port of Tallinn, said that privatizing the port or selling off portions for development would gain nothing for the port, ETA reported on 2 February. The port is an important revenue source for the Estonian government which collects tens of millions of kroons each year. The Port of Tallinn reported on 29 January that it had increased its profits in 2000 to 473.8 million kroons ($28 million) from 280 million kroons in 1999, according to ETA. The port handled 29.34 tons of cargo -- including Russian oil transit -- last year, 10.9 percent more than in 1999. The port was visited by 10,367 ships, which was a 4.8 percent increase over 1999 -- the number of passenger ships up 4.7 percent and that of cargo ships 5 percent.

PM SAYS GOVERNMENT IS 'MORE STABLE THAN EVER.'
Prime Minister Andris Berzins told a press conference in Riga on 1 February that his government is "more stable than ever" since he forced the New Party to leave his governing coalition, LETA reported. Berzins explained that no decision can be adopted without a consensus among the three remaining coalition partners -- People's Party, Latvia's Way, and For Fatherland and Freedom (TB/LNNK). As a result, Berzins reasoned, all the remaining parties were "more determined" to keep the coalition intact.

LASCO SCANDAL POLARIZES PRIVATIZATION DEBATE...
Eizens Cepurnieks, the state proxy representing ruling coalition partner For Fatherland and Freedom (TB/LNNK) at the state-owned joint-stock shipping company Latvijas kugnieciba (LASCO), resigned on 30 January after meeting the previous evening with senior officials of his party, "Diena" reported. The board of TB/LNNK recommended that Cepurnieks resign to avert a situation in which his statements could be used to blame the party for an unsuccessful public tender of LASCO. An official of Transparency International-Latvia made public charges by Cepurnieks that former Prime Minister Andris Skele, chairman of the Peoples' Party, attempted to bribe officials in the LASCO privatization. Skele filed a request on 29 January that the prosecutor's office investigate the allegations made against himself and other officials, which he termed slanderous. Cepurnieks told reporters he was disassociating himself from statements made by Inese Voika, president of Transparency International-Latvia, concerning the bribery attempt, saying she "has spread hearsay."

...AS EDITORS ASK PRESIDENT FOR HELP.
The editors of several Latvian newspapers sent an open letter to President Vaira Vike-Freiberga on 29 January demanding that the Latvian Privatization Agency (LPA) adjust the LASCO tender requirements to make them "advantageous not only for the privatizers, but also for the state," LETA reported. The letter concludes that Latvia has a "label of a rather corrupt state" and that the LASCO case could "harm Latvia in the eyes of honest foreign investors." "Neatkariga Rita Avize" reported on 2 February that President Vike-Freiberga had rejected the editors' plea, saying that the process was too far advanced to be halted now.

LASCO LIABILITIES THREATEN PRIVATIZATION EFFORT.
A British court on 2 February ruled that the Latvian shipping company LASCO and its subsidiary Latreefers owe some $30 million to the Gdansk shipyard in Poland for breach of contract, BNS and LETA reported 2 February. The ruling may endanger the current effort to privatize 68 percent of the shares of the state-owned monopoly. Janis Naglis, the head of the Latvian Privatization Agency, had announced that a sufficient number of bids had been received by the 1 February deadline. The government on 13 February is expected to narrow the field to the five best companies, which will be allowed to bid in the auction scheduled for 11 May. This is the fourth attempt since 1995 to privatize LASCO. The last attempt triggered the collapse of the government last spring.

OFFICIALS WANT TO STRENGTHEN RELATIONS WITH RUSSIA.
After a meeting with Prime Minister Andris Berzins, Foreign Minister Indulis Berzins, and parliament speaker Janis Straume on 2 February, President Vaire Vike-Freiberga told reporters that the establishment of friendly relations with Russia must be a key foreign policy priority, LETA reported. She declared her readiness to meet with her Russian counterpart, Vladimir Putin, and said she is waiting for a signal on this from Russia.

POPULATION CONTINUES TO SHRINK...
The total population of Latvia declined by 13,800 persons, or 0.6 percent, last year despite a rise in the birth rate and a decline in the death rate, BNS reported on 31 January. At the beginning of 2001 Latvia had a population of 2.36 million.

....BUT FOREIGN INVESTMENT GROWS�
The total volume of accrued direct foreign investment in Latvia in 2000 slightly exceeded total direct foreign investment in 1999, according to estimates made by the Bank of Latvia, LETA reported on 31 January. Five countries -- the U.S., Germany, Denmark, Estonia, and Sweden -- accounted for half of foreign direct investment.

�AS DOES ECONOMY.
The Ministry of Economy said that in 2000, GDP grew 5.7 percent, inflation stood at 2.6 percent, the national debt was 13.2 percent of GDP, the foreign trade balance was minus 15.4 percent and the unemployment rate declined to 7.8 percent. It forecasts a 6 percent growth in gross domestic product for 2001, LETA reported on 30 January. Olegs Baranovs, head of the ministry's National Economy and Structural Policy Department, said that all sectors of the economy are improving. Consumer prices, meanwhile, are expected to rise only 3 percent this year, with unemployment falling to 7 percent. The national debt is projected to grow to 13.5 percent in GDP and the foreign trade balance is expected to be minus 15 percent.

* Finance Ministry press secretary Baiba Melnace announced on 2 February that the national budget had a surplus of 7.56 million lats ($12.3 million) in January, LETA reported. The budget revenues of 63.06 million lats, moreover, were greater than those in any month in 2000.

* Britain will allocate 45,000 lats ($70,000) to support the teaching of the Latvian language to non-Latvian adults in Latvia, the United Nations office in Riga reported to BNS on 2 February.

* According to a law passed by the Latvian parliament on 1 February, the red-white-red national flag must now be displayed at all state and local educational facilities, LETA reports. The legislation was offered by Education and Science Minister Karlis Greiskalns, in an effort to boost civic pride among children and youth and foster the growth of patriotism and respect for the schools and the state.

* More than 16,500 Latvian residents have yet to exchange their Soviet-era passports for Latvian non-citizens' identification documents, according to the Citizenship and Migration Administration. USSR passports are no longer considered valid identification in Latvia, and not having valid identification is a violation of administrative law subject to a fine of 25 lats ($40.67).

* "The New York Times" reported on 29 January that Pope John Paul II announced that he has created cardinal Janis Pujats, the 70-year-old Archbishop of Riga. The elevation was made in 1998 but kept in pectore, the Vatican said.

NATO EXPERTS END REVIEW OF LITHUANIAN READINESS.
A NATO team of 20 experts ended its four-day visit in Lithuania to review the country's NATO preparedness, ELTA reported on 2 February. The team's report will be issued in the spring, BNS reported. The experts visited the Karmelava Regional Airspace Surveillance Center, a training regiment in Rukla, and the Grand Duke Algirdas motorized infantry battalion. Special attention was also given to Lithuania's effort to create, organize, and manage its security systems for computer data. The NATO officials found the latest public opinion surveys on civilian support for the country's NATO candidacy encouraging. A December 2000 poll showed 48.9 percent of residents support Lithuania's aim to become a NATO member, while only 22.3 percent are against it with the remaining balance undecided.

DEBATE SET ON WTO MEMBERSHIP.
Lithuanian parliament Chairman Arturas Paulauskas said ratification of the agreements with the World Trade Organization (WTO) will be a top priority for lawmakers when they return for their spring session in mid-February, ELTA reported on 29 January. Lithuania was the last of the three Baltic states to be approved for WTO membership, when President Valdas Adamkus signed the accession documents in Geneva on 8 December. The Lithuanian parliament is expected to ratify the 25 agreements by 1 May, officially making Lithuania a WTO member.

ECONOMY MINISTER DID NOT VIOLATE ETHICS LAW.
Lithuania's state ethics commission cleared Economy Minister Eugenijus Maldeikis on 31 January of charges that he violated ethics law. The committee said that it had found no evidence of a conflict of interest, Reuters reported. Maldeikis had allowed a Lithuanian-based Gazprom subsidiary to pay for expenses during his recent working visit to Moscow. Prime Minister Rolandas Paksas had said earlier that Maldeikis would have to step down if the ethics commission ruling was unfavorable.

PROSECUTOR CONCLUDES GENOCIDE CASE.
The Lithuanian Prosecutor-General asked the court to find Kazys Gimzauskas guilty of criminal complicity in the genocide against Jews in Lithuania during the Nazi occupation, BNS and ELTA reported on 2 February. The prosecutor told the court that a verdict of guilty would suffice, since it would be unrealistic to sentence the defendant, who is 92 years old and suffering from acute Alzheimer's disease. The prosecutor expressed regret that Gimzauskas could not attend the proceedings and understand his punishment for the highest crimes against humanity. Defense lawyers claimed in their summation that Gimzauskas belonged to the anti-Nazi resistance and never took part in murdering Jews, AP reported. Gimzauskas served in the Vilnius office of Saugumas, a security police force, during the 1941-44 Nazi occupation of Lithuania. The court is expected to announce its verdict on 14 February.

* Lithuania's government on 31 January approved a plan to shut down one of two reactors at the country's Soviet-built Ignalina nuclear power plant, AP reported. The process of totally decommissioning the station may take as long as 80 years, according to the government's plan.

* The Lithuanian Center Union applied to the Prosecutor-General and the Ministry of Justice to suspend the activities of the Freedom Party because of the actions of its chairman, controversial MP Vytautas Sustauskas, ELTA reported on 31 January. And Seimas Chairman Arturas Paulauskas on 1 February asked the parliament's ethics commission to investigate the allegations that Sustauskas voiced anti-Semitic statements on Swedish television last month. Paulauskas cited the fact that the statements by Sustauskas caused damage to Lithuania's image abroad and could be treated as an incitement to national discord, which is punishable under Lithuanian law.

* The Conservative Party proposed to the government that it suspend signing an agreement between the state-owned utility Lietuvos Energija (Lithuanian Energy) and the electricity monopolies of Russia, Belarus, Latvia, and Estonia, BNS and ELTA reported on 2 February. The agreement regulates electricity production and flows across the old Soviet power grid, and may infringe on Lithuania's efforts to build an electrical power supply bridge to Poland and Western markets. Last year, the Conservative-dominated government refused to sign such an agreement.

* The Austrian Embassy in Vilnius announced that the first compensation payments to 200 Lithuanians who worked in forced labor camps in Austria during World War II will arrive in February, BNS reported on 29 January. According to the Lithuanian Genocide and Resistance Center in Vilnius, more than 10,000 Lithuanians were forced into labor camps by Nazi Germany.

* The Danish shipping company, DFDS Tor Line, has replaced the Dutch-registered B.B. Bredo B.V. company as the winner of the tender for the privatization of Lithuania's state-owned shipping company known as LISCO and started its negotiations for the purchase of over 76 percent of LISCO on 1 February, ELTA reported. DFDS Tor Line manages seaport terminals along with its shipping services, and already has an office in the Lithuanian port at Klaipeda. The tender by B.B. Bredo. B.V. was invalidated after the company failed to transfer payment of $47.6 million for the shares late last year.

* The Lithuanian Statistics Office on 2 February released the results of its most recent survey of 300 manufacturing companies in Lithuania, which employ nearly 50 percent of the workforce engaged in manufacturing , ELTA reported. According to the poll, Lithuanian manufacturers who allocated major funds to the replacement of capital equipment last year, said that production levels will remain flat and expect producer prices to remain stable in 2001.

* The government decided to liquidate the Children's Rights Protection Agency under the Ministry of Social Welfare and Labor on 31 January, ELTA reported, because the Child Adoption Agency and the recently established Children's Rights Protection Controller have taken over the major functions of the ministry's office.

* Kaunas Mayor Gediminas Budnikas, who has served only two months in office, announced on 30 January that he would submit his resignation at the next city council session on 15 February, ELTA and "Kauno Diena" reported the next day. Budnikas blamed the situation on the city council's Conservative Party members who had withdrawn from a coalition agreement with Budnikas' party, the Freedom Union, at a city council meeting on 17 January. At that meeting, First Vice Mayor Kazimieras Starkevicius, a Conservative, said that both the Freedom Union and Young Lithuania Party factions in the city council had failed to observe the coalition's joint program and that the coalition "could not continue." Budnikas called for the New Union/Social Liberals to take over the mayor's office, as provided for in an agreement signed by the Freedom Union and New Union immediately after the parliamentary elections last November.

* The government adopted regulations which will make it much easier for both Lithuanian and foreign businesses to acquire land for manufacturing or commercial activities, ELTA reported on 31 January. The amended regulations shortened the term during which the regional governors must decide on land lot applications from a month to only 20 days. The regional governors also lost their right to prolong the process with requests for further information. Local authorities, rather than the purchaser, are required to produce the survey of the land lots registered for purchase.

POPULATION DECLINES.
Lithuania's population fell by 5,600 persons last year, ELTA reported on 30 January. Petras Adlys, director general of the Lithuanian Department of Statistics, said that 3.69 million people resided in Lithuania at the end of last year. Adlys also noted that mortality rates have decreased slightly and average life expectancy edged upwards.

ELECTRICITY EXPORTS TO BELARUS RESUMED.
Lithuania restarted the first block of the Ignalina nuclear reactor on 29 January and renewed electricity exports to neighboring Belarus, BNS reported. The first power unit was stopped and put into reserve on 31 December following the termination of electricity exports to Belarus because of non-payments. The Soviet-style Ignalina power plant generates about 70 percent of Lithuania's electricity, but its first reactor is scheduled to be decommissioned by 2005.

UNEMPLOYMENT INCREASES.
The Lithuanian Labor Exchange announced on 2 February that the unemployment rate increased by 0.5 percent in January to 13.1 percent on 1 February, ELTA reported. At the beginning of the month there were 235,100 registered unemployed, which is 22.7 percent more year-on-year. The highest unemployment rates were in the regions of Druskininkai (29.2 percent), Akmene (24.4 percent), and Pasvalys (23.7 percent), with the lowest in the regions of Anyksciai (7.3 percent), Kedainiai (8.7 percent), and Trakai (8.7 percent). In the major cities, the rates were 9 percent in Vilnius, 9.1 percent in Kaunas, 9.9 percent in Klaipeda, 16.4 percent in Siauliai, and 17 percent in Panevezys.

NEW CENTER TO PROTECT AGAINST 'MAD COW DISEASE.'
The State Food and Veterinary Service has established a new center for the prevention of bovine spongiform encephalopathy (BSE), better known as "mad cow disease," ELTA reported on 30 January. Kazimieras Lukauskas, director of the State Food and Veterinary Service, said that no cases of mad cow disease have been registered in Lithuania so far, but Vilnius banned the import of beef and all types of semi-finished beef and poultry foodstuffs, blood meal, bone dust, and fodder combined with any of these products from foreign states -- except from Latvia and Estonia.

WILLIAMS INVITES BRZAUSKAS TO MAZEIKIAI.
Williams International, a U.S.-based strategic investor and managing partner in the state-owned oil refinery Mazeikiu Nafta (Mazeikiai Oil), has invited former President Algirdas Brazauskas to come to see the progress made at the oil refinery in the last year, ELTA reported on 1 February. Brazauskas, who has defended the interests of the Russian oil giant LUKoil, recently accused the U.S. firm of using its position in the refinery to launder funds and misappropriate state subsidies to the plant. James E. Scheel, Director of Operations at Mazeikiu Nafta, wrote in his letter to Brazauskas, "[your] accusations do not correspond to reality."