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Baltic Report: July 23, 2001

23 July 2001, Volume 2, Number 19
According to the United Nations' Human Development Report, the three Baltic states improved their rankings compared to last year, ETA reported on 10 July. The ranking is based on such factors as personal income, health care system, life expectancy, and educational level of the populations. The report divides countries into three groups: states of high, medium, and low levels of development, with the first 48 countries being deemed to have high development. Estonia rose from 46th place out of 174 countries last year to 44th of 162 countries and Lithuania from 52nd to 47th place. Latvia, with a ranking of 50th, was placed in the medium development group, but it showed the most progress among the Baltic states, advancing from 63rd last year. The annual per capita GDP was $8,355 in Estonia, $6,656 in Lithuania, and $6,264 in Latvia.

Prime ministers Mart Laar (Estonia), Andris Berzins (Latvia), and Acting Prime Minister Eugenijus Gentvilas (Lithuania), during a meeting of the Baltic Council of Ministers on 9 July in the Latvian town of Sigulda, agreed on a plan for forming a joint Baltic energy market, LETA and BNS reported. The final version of the plan will be implemented after the EU finishes developing its directive relating to the energy market. The premiers also signed a joint resolution voicing satisfaction over the outcome of the informal NATO summit meeting on 13 June in Brussels and the commitments of NATO enlargement expressed by U.S. President George W. Bush during his recent visit to Europe. Prior to the session in Sigulda, the premiers visited the underground natural gas-storage facilities in Incukalns and afterwards they attended the unveiling of a memorial to Estonian poet and philologist Kristjan Jaak Peterson in Sv. Jekaba (St. Jacob's) cemetery in Riga.

In formal ceremonies in Riga on 10 July, the command of BALTRON, the joint Baltic states' naval squadron, passed from Latvian Commander Andrejs Zvaigzne to Estonian Lieutenant Commander Igor Schvede, BNS reported. Latvia's armed forces commander, Colonel Raimonds Graube, stated that BALTRON is one of the most successful examples of Baltic cooperation, which can be successfully integrated with NATO forces in the future.

In his interview published in "Pravda" on 29 June, Foreign Minister Igor Ivanov said that what he called the acute humanitarian situation in Estonia and Latvia is "constantly in the focus of our attention," ITAR-TASS reported. "One cannot regard as normal a situation when one-third of a country's population has no citizenship, is limited to the right of education in its mother tongue, and is being dislodged to the sidelines of social and political life," Ivanov said.

In an article appearing in the July 10 edition of "The Moscow Times," Russian political commentator Yevgenia Albats asserts that the Russian and American governments are "in the heavy bargaining stage of a process that might be called 'missiles in exchange for the Baltics.'" Albats claims that "Russia will quietly allow the United States to abrogate the 1972 Anti-Ballistic Missile Treaty, while Bush will not insist on expanding NATO up to Russia's borders and will leave the Baltic states out of the alliance."

The foreign ministers of ten countries aspiring to NATO membership -- Albania, Bulgaria, Croatia, Estonia, Latvia, Lithuania, Macedonia, Romania, Slovakia, and Slovenia -- adopted a joint statement in Tallinn on 2 July urging the alliance to extend invitations at the Prague summit in 2002 to all prepared candidates regardless of geography and history, ETA and BNS reported. The ministers praised the speech by U.S. President George W. Bush on European security in Warsaw last month and the positive impact of pro-enlargement statements by many European leaders. The participants agreed on the need for closer cooperation between the candidate countries in the run-up to the Prague summit. To that end, they will hold a summit conference in Sofia on 5 October, a prime-minister meeting in Bucharest in the spring of 2002, and a high-level meeting in Riga in the summer of that year.

Lennart Meri refused to promulgate the recently adopted Churches and Congregations Act on 29 June, BNS reported. Before making the decision, Meri consulted with Justice Chancellor Allar Joks, while his advisers talked about freedom of religion with an expert from Tartu University. Meri noted that the Estonian Council of Churches opposed the law because it could prevent the registration of such traditional churches as the Estonian Union of Seventh-Day Adventists. Meri did not, however, mention the more important complaints against the law by the Estonian Orthodox Church subordinate to the Moscow Patriarchate. Leonti Morozlon, a representative of that church, praised the president's decision, but expressed regret that it is still not clear when the church will be able to be registered officially.

The International Monetary Fund's annual report on Estonia published on 9 July presents the country as one of the most economically successful transition countries, ETA reported. The report asserts that cautious macroeconomic policies and vigorous structural reforms have supported solid economic growth and the almost complete transition to a market economy. The currency board and the nearly completed privatization program relying on strategic foreign investors aided the economy, which grew by 6.9 percent in 2000, and led to a decrease in unemployment and a sharp reduction in the budget deficit. The IMF said that Estonia's medium-term economic prospects remain favorable, but that the short-term outlook could become clouded if the slowdown in the world economy proves sharper than currently expected.

The U.S. company NRG Energy, which is close to completing its purchase of a large stake in the companies Narva Power and Estonian Oil Shale, announced on 11 July that it will invest 338 million euros ($290 million) to meet upcoming stricter European Union environmental regulations, ETA reported. Mota Zengerle, the environment manager of NRG Energy, said that his company will pay for all environment-related investments, even though the state-owned power firm Estonian Energy also shares responsibility for them. Most of the funds will be spent in Ida-Viru county, mainly renovating the power stations and reducing harmful emissions and waste products there. The renovation will boost the output of the stations while cutting pollution through the construction of a wastewater-treatment plant, the development of an air-pollution-monitoring system, and the processing of oil shale ash.

The Statistical Office announced on 6 July that the consumer price index increased by 0.2 percent in June compared to May and 6.9 percent compared to June 2000, ETA reported. The Finance Ministry said that higher inflation rates should be expected in the next months since dairy products will become more expensive from July due to greater export quotas to the EU, and higher tobacco excise taxes will push up the price of tobacco products. The Bank of Estonia, on the other hand, declared that the stabilization of inflation in June indicated lower inflation in the future because inflation in the EU apparently passed its peak in May and outside pressure will therefore decline. The Bank expects the annual inflation rate to remain below 6 percent
* A fire, probably caused by a short circuit, broke out in the basement of the Estonian Embassy in Washington in the evening of 2 July, causing an estimated $2.5 million in damage to the building and its interior, BNS reported.
* Foreign Minister Toomas Hendrik Ilves stated on 6 July that Estonia hopes to close seven additional chapters of its EU negotiation talks during Belgium's presidency in the second half of 2001, ETA reported. The chapters are on the free movement of labor, transport, competition, energy, taxation, customs union, justice, and interior issues.
* After visiting the Amari airspace surveillance center, Supreme Allied Commander Europe U.S. General Joseph Ralston told Defense Minister Juri Luik on 29 June that Estonia's movement toward NATO was marked by a realistic attitude and high-quality defense planning, BNS reported. At a lunch with President Lennart Meri, Ralston praised the work of the Estonian soldiers serving in the NATO peacekeeping missions in former Yugoslavia.
* The Israeli parliament on 9 July ratified a visa-free travel agreement that was initialed in Tallinn in November 2000 and approved by the Estonian government that same month, ETA reported on 11 July. The agreement will go into effect from the beginning of October and will allow citizens of one country to stay in the other country for up to 90 days without a visa.
* The efforts of the opposition parties to hold a special parliament session on 4 July to discuss the privatization of the power plants in Narva failed because the deputies from the ruling coalition did not attend, ETA reported. To be valid 51 deputies had to attend the session, but only 43 were present.
* The government on 10 July rejected a bill offered by the opposition Center Party, Coalition Party, People's Union, and Estonian United People's Party to raise child benefits to 1,000 kroons ($54.70) per month, noting that the budget does not have sufficient funds for such an increase, BNS reported. It also rejected a bill proposed by the People's Union to raise old-age pensions to half of average net wages by 2008.
* The Statistical Office announced on 5 July that the foreign trade deficit decreased from 1.96 billion kroons ($116 million) in April to 945 million kroons ($56 million) in May, ETA reported. EU states were the most important trade partners in May, purchasing 74 percent of Estonia's exports and selling 60 percent of imports. CIS states, on the other hand, accounted for 4 and 10 percent of exports and imports, respectively.
* The Statistical Office announced on 29 June that the gross domestic product in the first quarter of 2001 rose by 5.8 percent compared to the same period last year, ETA reported. The greatest year to year growth was for manufacturing (12.5 percent), financial mediation (8.4 percent), construction (7.0 percent), and real estate (6.5 percent). The only sectors showing a decline were energy, gas and water supply, down 6.0 percent, and health and social work, down 3.7 percent.
* The Labor Market Board announced on 11 July that the number of registered unemployed declined from 56,590 in May to 52,300 in June or a decrease in the unemployment rate from 6.5 to 6 percent, BNS reported. Some 54.9 percent of the registered unemployed are women. The unemployment rate for people under 25 years is 17.2 percent, and for those more than 50 years old 19.4 percent.

During the World Economic Forum in Salzburg on 1 July, EU Enlargement Commissioner Guenter Verheugen told Vaira Vike-Freiberga that Latvia has made great progress in its EU membership efforts and has caught up with the candidates who started negotiations earlier, BNS reported. He noted that Latvia should work harder on harmonizing its legislation with the EU, emphasizing the implementation of legislative changes. In talks with former Russian Premier Sergei Kirienko, Vike-Freiberga affirmed that economic ties between their countries have improved in the last six months.

Addressing the World Economic Forum in Salzburg on 2 July, Vaira Vike-Freiberga called on foreign business people not to give bribes to Latvian officials if they want to operate in Latvia in a truly free and fair market environment. Vike-Freiberga and Austrian President Thomas Klestil agreed that Central Europe and the Baltic states need to be integrated further, with Klestil stating that his planned visit to Latvia next year will promote political, economic, and cultural dialogue between the two countries.

In a letter to Latvian Economy Minister Aigars Kalvitis, the European Bank for Reconstruction and Development's (EBRD) director for the Baltic countries, George Krivicky, offered four alternative scenarios for EBRD participation in a fourth attempt to privatize the state-owned Latvian Shipping Co. (LASCO), LETA reported on 12 July. Two of the options are linked to granting loans, and the other two with the purchase of shares that could be kept by the bank or sold to an investor during the privatization process. EBRD involvement would broaden the range of interested bidders, thus increasing potential revenue that the state could receive from the privatization. Latvia has unsuccessfully sought to privatize LASCO three times since 1997, with the latest failure occurring in late April.

Belgian Ambassador to Latvia Louis Engelen told a press conference in Riga on 6 July that European Union enlargement will be one of the priorities in Belgium's EU presidency in the second half of 2001 and that, like Sweden, Belgium will support Latvia's accession to the EU, LETA reported. He admitted that it will be more difficult for Belgium to carry out this role, as Latvia was able to open many negotiating chapters during Sweden's term in office. Engelen hopes that at least 10 additional chapters could be closed during the Belgian presidency.

Bank of Latvia President Einars Repse told a news conference in Riga on 11 July that Latvia's gross domestic product (GDP) will grow by 7 percent in 2001, BNS reported. He noted that first quarter GDP grew by 8.2 percent, while Latvia's current account deficit fell from 4.5 percent of GDP in the first quarter of 2000 to 4.1 percent of GDP this year. Repse said economic growth could be affected by a general economic slowdown in Europe and the world, but as the national currency, the lat, is pegged to the SDR currency basket and not the euro, Latvia might be more flexible in reacting to outward turbulences. Last year, among EU applicant countries, Latvia's GDP growth of 6.6 percent was only exceeded by Turkey's 7.2 percent growth. The average GDP growth rate for EU candidate countries last year was 5.2 percent, and 3.3 percent for EU member countries.

Visiting Baku on 10-11 July, Indulis Berzins affirmed Latvia's "serious plans" for cooperation with Azerbaijan, especially in the economic sphere, ITAR-TASS reported. Berzins said that, given Latvia's aspiration to EU membership, Azerbaijan should regard such cooperation as cooperation with the EU. Berzins gave a positive evaluation to the GUUAM group of nations, of which Azerbaijan is an original founding member, and said that Latvia intends to participate in the TRACECA and North-South transport corridors. Berzins and his Azerbaijani counterpart Vilayat Quliev, signed bilateral agreements on motor transport and on cooperation between their respective ministries. Further agreements on air transport, customs, and avoidance of double taxation are being prepared.
* Portugal's Ambassador to NATO Fernando Andresen-Guimaraes told Foreign Minister Indulis Berzins in Riga on 29 June that Latvia has been doing its homework well and is showing good progress in preparing for NATO membership, LETA reported. Guimaraes and Berzins also participated in a seminar on Latvia's participation in NATO, organized by the non-governmental organization LATO.
* Latvia's Ambassador to UNESCO Sandra Kalniete announced that, during meetings held in Korea from 27-29 June, the "Dainu Skapis" collection of Latvian folk songs was one of 21 objects accepted into UNESCO's Memory of the World Register, BNS reported on 29 June. The register identifies the most significant items of humanity's documental heritage -- archives, sound recordings, and photo-cinematographic collections. The "Dainu Skapis" is a custom-made wooden cabinet in which Latvian ethnographer Krisjanis Barons maintained a collection of 271,996 individual "dainas," or Latvian folksongs, written by hand on strips of paper in the late 1800's and early 1900's.
* Riga City Council Deputy Chairman Sergei Dolgopolov told LETA on 11 July that Riga will donate to St. Petersburg a replica of a monument to Tsar Peter I, originally unveiled in Riga in 1910, but lost at sea during transfer to St. Petersburg in 1915, while the now-recovered original will most likely remain in Riga. Russia has agreed to pay all costs associated with making the replica.
* The Latvian Statistics Bureau announced on 9 July that the consumer price index grew by 0.6 percent in June compared to May of this year and 3.1 percent compared to June 2000, LETA reported.
* The State Employment Service announced on 10 July that the number of registered unemployed on 1 July was 93,659 or 7.8 percent of the working population, down 1,104 from a month ago, BNS reported. The unemployment rate varies from 3.6 percent in the city of Riga to 27.7 percent in the in the eastern district of Rezekne.
* In the first half of 2001, cargo turnover at Latvia's three major ports reached 29.337 million tons, a 12 percent increase over the first half of 2000, LETA reported on 11 July. The port of Ventspils handled a record high 20.008 million tons of cargo, while the port of Riga handled 7.613 million tons and the port of Liepaja 1.716 million tons.

After the parliament on 12 July approved the new government program by a vote of 81 to 36, with six abstentions, Prime Minister Algirdas Brazauskas and 13 ministers were sworn into office, ELTA reported. Earlier that day, the main partner in the new ruling coalition -- the Social Democratic Party (LSDP) -- took over the leadership of six parliament committees that had been headed by deputies from the Center Union and Liberal Union. Algirdas Butkevicius replaced Centrist Kestutis Glaveckas as the chairman of the Budget and Finance Committee, while Gediminas Kirkilas replaced Liberal Alvydas Medalinskas as chairman of the Foreign Affairs Committee. Algirdas Sysas, Aloyzas Sakalas, Alfonsas Macaitis, and Petras Popovas were elected as chairmen of the Social Affairs and Labor, Law and Order, Environmental Protection, and State Administration and Local Authorities committees, respectively. LSDP Deputy Chairman Vytenis Andriukaitis was elected the fourth deputy chairman of the parliament, a necessary condition for him to become the future chairman of the European Affairs Committee. The spring session of the parliament was ended that day, but an extraordinary session is expected to open on 31 July to debate the contract between U.S.-based Williams International and the Russian oil firm YUKOS on supplying crude oil to the Mazeikiai oil refinery as well as a long-standing constitutional amendment to allow the sale of land to foreigners.

At an extraordinary parliament session on 2 July, President Valdas Adamkus officially presented Social Democratic Party (LSDP) Chairman and former President Algirdas Brazauskas as his nominee for prime minister, ELTA reported. Brazauskas told the parliament that his government will pursue a socially oriented domestic economic policy which will aim "to reduce unemployment and create new jobs, to create a favorable environment for foreign and domestic investments, and to liberate business from bureaucratic constraints." He asserted that the principal foreign policy goals will continue to be membership in NATO and the European Union, while retaining friendly ties with neighboring countries. Brazauskas also had separate meeting with the various factions in the parliament during which he answered their questions.

Valdas Adamkus signed a decree on 5 July confirming the composition of the new cabinet to be headed by LSDP Chairman Brazauskas, BNS reported. The six ministers who had been delegated to the previous government by the center-left New Union (Social Liberals) remain in the cabinet, five in the same posts: Antanas Valionis (Foreign Affairs), Algirdas Monkevicius (Education and Science), Vilija Blinkeviciute (Social Security and Labor), Kestutis Kristinaitis (Agriculture), and Romualdas Dobrovolskis (Health Care), while Vytautas Markevicius shifted from Internal Affairs to Justice Minister. Defense Minister Linas Linkevicius also retained his portfolio, even though he had previously been chosen by the Liberals. The three new ministers from the LSDP are also parliament deputies: Juozas Bernatonis (Interior), Roma Dovydeniene (Culture), and Zigmas Balcytis (Transport and Communications). The three remaining ministers do not belong to any party: Lithuanian Industrialists Confederation Vice President Petras Cesna (Economy), former Deputy Foreign Minister Dalia Grybauskaite (Finance), and Arunas Kundrotas (Environment).

In a special parliament session on 9 July, LSDP Chairman Brazauskas presented a 30-page program for 2001-2004 that his cabinet will follow, ELTA reported. He spoke for about a half hour and then answered questions together with the 13 proposed ministers. The program is less leftist than the platform on which the Social Democrats campaigned and does not mention the need to introduce a progressive personal income tax, although it does call for raising the level of income on which tax is not levied. It stresses the importance of maintaining a strict policy for state borrowing and cautious investment. The program asserts the continuity of Lithuania's foreign policy and declares that the country's aspirations to join the European Union and NATO and maintaining good relations with its neighbors are equally important.

The government changed its earlier position and decided on 11 July not to request a transition period for compulsory vehicle third-party liability insurance coverage during its EU membership negotiations, BNS reported. In August 2000 it decided to ask for a transition period until the end of 2009 to avoid a great increase in insurance premiums. The Lithuanian vehicle third-party Liability Insurance Law, effective from 1 April 2002, sets the minimum coverage amount at 30,000 litas ($7,500) for both personal injury and vehicle damage. EU directives, on the other hand, set the minimum coverage at 350,000 euros ($300,800) and 100,000 euros, respectively. With no transition period, Lithuanian nationals would not have to acquire an additional "green card" policy while traveling in EU countries and would not be discriminated against during border-clearance procedures

Andrei Nikolaev, the chairman of the Duma Defense Committee, told military attaches from foreign embassies in Moscow that Russia will find a way to supply its fleet and army units stationed in Kaliningrad even if Lithuania joins both the European Union and NATO, RIA-Novosti reported on 9 July.
* The president of Russia's oil company YUKOS, Mikhail Khodorkovskiy, during his one-day visit to Lithuania on 6 July discussed with Prime Minister-designate Algirdas Brazauskas and the head of the parliament's Economic Committee, Viktor Uspaskich, his company's agreement with Williams International to purchase a 26.85 percent share in Mazeikiai Oil for $75 million, BNS reported. YUKOS would also supply the Mazeikiai refinery with 4.8 million tons of crude oil, or one-third of the plant's annual capacity, for the next 10 years. The Lithuanian parliament will have to amend a number of its laws to make the agreement lawful.
* The last passenger wagon of the Riga-Vilnius express train derailed on the morning of 6 July about 25 kilometers from Kaunas, because unknown saboteurs had removed 44 bolts securing an 8-meter-long rail, "Kauno diena" reported the next day. The train's driver noticed the slightly raised rail, braked, and only the last carriage derailed with no passengers being injured. The motives for the sabotage are not known, but it calls to mind the still unsolved explosion at a railroad bridge over the Brazuole creek in 1993.
* A NATO squadron of seven frigates from Canada, Germany, the Netherlands, Portugal, Spain, the United Kingdom and the United States, a Norwegian submarine, and a Royal Navy tanker docked in the port of Klaipeda on 6 July, BNS reported. On 9-12 July the ships, along with the Lithuanian frigate Zemaitis and a Polish ship, took part in the international war games Cooperative Ocean 2001. NATO squadrons rarely visit non-member ports, but the squadron's head, Portuguese Naval Commander Fernando Jose Ribeiro de Melo Gomes, said that the arrival in Lithuania was not a political gesture but a friendly visit indicating good relations and the organization's desire to cooperate with Lithuania.
* The administrative council of the European Patent Organization decided to invite Lithuania to join the European Patent Convention, ELTA reported on 3 July. It sent a delegation, headed by Patent Council President Ingo Kober, to Vilnius on 5 July for talks with Director-General of Lithuania's European Union committee Petras Austrevicius and the chief of the national patent office.
* The parliament's Foreign Affairs Committee unanimously confirmed on 9 July the appointment of new ambassadors to seven countries: Israel, the Czech Republic. Greece, Belgium, Italy, Ukraine, and China, BNS reported the next day.
* The Statistics Department announced on 10 July that the consumer price index increased by 0.6 percent in June compared to May of this year and 1.5 percent compared to June 2000, ELTA reported. The prices of food and nonalcoholic drinks grew by 1.1 percent, transport goods and services by 1.9 percent, and alcoholic drinks and tobacco products by 1.1 percent, while communications services decreased by 3.5 percent.
* Lithuanian Energy restored its export of electricity to Belarus on 5 July after receiving confirmation from Russia's Sherbank that the intermediary company Inter RAO UES will pay for 600 million kWh of electricity, ELTA reported. Lithuanian Energy had supplied 50 million kWh in June and has been asked to supply 60 million kWh in July.
* The State Property Fund announced on 2 July that the revenue in the first half of the year from the privatization of 395 state and municipal properties was 406 million litas ($101.5 million), ELTA reported. Most of the revenue came from two deals: the sale of a 90.73 percent stake in the Lithuanian Savings Bank to Hansabank for 150 million litas and sale of a 76.36 percent stake in the Lithuanian shipping company LISCO to the Danish DFDS Tor Line for 190.3 million litas.
* The volume of cargo in the port of Klaipeda in the first half of the year was 8.871 million tons or 18.7 percent less than in the same period last year, BNS reported on 11 July. A total of 2,971 ships were serviced during the six months, an 11.07 percent decline compared to a year ago.
* The government on 11 July agreed to the construction of a natural gas pipeline from Belarus to the southern Lithuanian city of Druskininkai through the border checkpoint of Raigardas, BNS reported. The installation of the 25-kilometer-long pipeline is expected to cost about $2 million and be completed in 2002.