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Caucasus Report: July 29, 1999

29 July 1999, Volume 2, Number 30

Armenian Premier Seeks To Overcome Budget Crisis. Outlining his cabinet's program to the new Armenian parliament on 18 June, Prime Minister Vazgen Sargsian singled out as one of his top priorities overcoming a growing budget deficit with the support of international financial organizations and without retreating from the path of economic reform. The following day, Minister for State Revenues Smbat Ayvazian told journalists that the spending and revenue targets for 1999 are "unrealistic." The full extent of the economic crisis that Sargsian inherited from the outgoing cabinet of Armen Darpinian became clearer over the next few weeks amid persistent rumors of budget cuts and postponement of the disbursement of anticipated loan tranches from the World Bank and IMF totaling some $55 million.

In a televised speech on 28 July, Sargsian sought to explain the extent and causes of the budget shortfall as well as the measures he was proposing to bridge it. Describing the present economic situation as "extremely difficult but not hopeless," Sargsian said that revenues for the first half of 1999 were 33 billion drams ($61 million) less than planned, an shortfall equal to more than 10 percent of projected government spending for the year. He said that the Darpinian government's "underestimation" of the ongoing repercussions of last year's Russian financial crisis has already cost the 1999 budget $18 million. Other factors that contributed to the shortfall, according to Sargsian, were tax evasion and the failure of major consumers (mostly industrial enterprises and water suppliers) to pay their debts to the energy sector. He pledged to reduce the budget gap by raising some taxes and cracking down on tax evasion and domestic debt. Those measures, Sargsian said, should not seriously affect the poorest members of society or the middle class. But as "Haykakan Zhamanak" observed on 29 July, both those groups will be hit by Sargsian's planned 200 percent increase in excise duty on cigarettes. (Excise duty on gasoline will also be increased by 44 percent).

Other analysts similarly expressed misgivings about the effectiveness of Sargsian's planned measures. Vahagn Khachatrian, an economist and former mayor of Yerevan, told RFE/RL it is unclear how the premier plans to clear utility debts. He added that any rise in the price of gasoline is likely to trigger a chain reaction of further price hikes, and that increased excise tax on cigarettes will merely make smuggling more attractive. But Ayvazian insisted that retail prices will not soar as a result of the increase in excise duties because the businesses dealing in cigarettes and petrol make "super-profits." He predicted that cigarette prices will rise by no more than 20 percent and gasoline by less than 10 percent.

Sargsian avoided any mention in his address of possible budget cuts, which some analysts believe are inevitable, saying instead that he will seek the parliament's approval of "changes" rather than "reductions." Earlier this week, Vartan Khachatrian, who is chairman of the parliament committee on finance and economics, told journalists that reductions in expenditure will be confined to construction and other infrastructure projects, and will not affect the social sector. Khachatrian did not say when parliament might convene in emergency session to consider amendments to the budget. The president may convene such a session during the summer recess at the request of either the premier or one third of all deputies, and Robert Kocharian has already indicated that he would agree to a request by Sargsian to so.

A government source told RFE/RL's Yerevan bureau last week that the IMF had given Yerevan until late August to bridge the budget gap, and on 24 July IMF resident representative in Yerevan George Anayiotis said that the Fund and the Armenian government had reached agreement on the measures necessary to do so. Anayiotis added that "if all goes well, the IMF board will be able to discuss Armenia's request [to release the belated $30 million loan tranche] ... some time in mid-September." If, however, the situation fails to improve over the next month, Sargsian may find it difficult to deliver on his 28 July pledge to pay back wages, pensions and allowances by 1 October. (Liz Fuller/Emil Danielyan/Ruzanna Khachatrian/Anush Dashtents)

Tensions Rising Again In Karachaevo-Cherkessia. In what observers note is a totally new approach to conflict resolution, the Russian leadership took further measures last week to resolve the standoff in the Republic of Karachaevo-Cherkessia between rival presidential candidates Vladimir Semenov and Stanislav Derev. But those measures have already sparked a new wave of protests, and may prove counterproductive.

The crisis dates from the second round of the presidential elections in mid-May, in which, according to official results, former Russian army ground forces commander Vladimir Semenov polled some 75 percent of the vote and his rival, businessman and Cherkassk Mayor Stanislav Derev -- 20 percent. Voting was marred by widespread violations by supporters of both candidates. When the Supreme Court of Karachaevo-Cherkessia ruled that the poll outcome was valid, Derev appealed to the Russian Supreme Court. At the same time, he advocated asking Moscow to name an interim president for a period of four years (see "RFE/RL Newsline," 22 June 1999).

On 23 July, the Russian Supreme Court overturned the republican court ruling, annulled Semenov's presidential mandate, and returned the case to the Karachaevo-Cherkessia Supreme Court. The following day, Russian President Boris Yeltsin appointed Valentin Vlasov, first deputy chairman of the Central Electoral Commission of the Russian Federation, as acting head of the republic. In a message to the republic's population the same day, Yeltsin said that his decision to appoint Vlasov does not constitute a violation of voters' rights, and that he is certain that "the judges will find the only correct decision that will satisfy the candidates themselves and their supporters."

Semenov's supporters reacted with anger to the Russian Supreme Court decision: some 12,000 of them attended a protest demonstration on 25 July in the town of Karachaevsk, the main center of the ethnic Karachai population, ignoring an appeal by Semenov himself not to take to the streets. (The Karachais are the second largest ethnic group in the republic after the Russians, accounting for 31 percent of the total 443,000 population, according to a 1994 estimate. The Cherkess account for 9.6 percent of the total population, and the related Abazins 6.5 percent. Semenov is a Karachai and Derev a Cherkess.) The following day, Murat Karaketov, who headed Semenov's election campaign staff, told Interfax that Semenov's supporters will boycott new elections should the republic's Supreme Court decide to call them. Karaketov further expressed surprise that the Russian leadership appears to be afraid of Semenov, whom he termed "a true proponent of a united and indivisible Russia." (That statement could be construed as directed against Derev, some of whose supporters have been accused by Russian commentators as planning to dismember the Republic of Karachaevo-Cherkessia as the first step towards establishing an independent "Greater Cherkessia.")

In what may prove to be a dangerous gamble, Vlasov met on 27 July with representatives of various organizations that support Semenov and granted them permission to hold a meeting in Derev's stronghold, Cherkessk, on 30 July. Meanwhile, up to 10,000 people have demonstrated in towns across the republic to protest both the Russian Supreme Court ruling and Yeltsin's appointment of Vlasov, which many demonstrators consider a violation of the Russian Constitution and of the power-sharing agreement between the republic and the federal center. Some demonstrators have warned that if the republican court annuls its 10 July ruling that the poll outcome is valid, they will boycott not only repeat presidential elections but also the Russian State Duma elections in December and next year's Russian presidential poll.

Some in Karachaevo-Cherkessia suspect that the Russian Supreme Court ruling was made under pressure from the presidential administration in order to delay a final decision on the outcome of the presidential poll, in the hope that passions would abate. If so, the new wave of demonstrations in support of Semenov suggests this was a major miscalculation. And Moscow's future options are limited. As Nationalities Minister Vyacheslav Mikhailov pointed out to "Nezavisimaya gazeta," the standoff between the Semenov and Derev camps is essentially a struggle for power, but the fact that the two candidates represent the republic's two titular ethnic groups inevitably means that a decision in favor of either candidate would be construed as favoritism towards the ethnic group to which he belongs. Mikhailov reasons that "in multi-subject Caucasian republics, the pan-Russian model for elections, which provides for direct voting, means that civic voting is transformed into ethnic voting, which is a dangerous tendency." As a possible solution, he proposes introducing the model of collective leadership.

Whether that solution would prove acceptable in the context of Karachaevo-Cherkessia is more than doubtful. (Liz Fuller)

Quotations Of The Week. "It's better to have several wives openly than to keep it secret." Federation Council chairman Egor Stroev, commenting on Ingushetian President Ruslan Aushev's 20 July decree legalizing limited polygamy (a maximum of four wives). Bashkortostan's President Murtaza Rakhimov, for his part, wondered "Where will they get so many brides?" (Caucasus Press, 22 and 23 July)