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Caucasus Report: August 19, 1999

19 August 1999, Volume 2, Number 33

Georgian Election Alliance Delayed. On 31 July, Tamaz Nadareishvili, who heads the so-called Abkhaz parliament-in-exile comprising ethnic Georgian deputies to the Abkhaz parliament elected in late 1991, announced that his Party for the Liberation of Abkhazia (AGP) would cement an election alliance the following day with the ruling Union of Citizens of Georgia. On 2 August, however, Nadareishvili said the signing ceremony had been postponed until 10 August for reasons he declined to explain. He stressed, however, that "all formalities have been settled, [and] principal agreement has been reached." Then on 18 August, Nadareishvili announced that consultations on the alliance have been completed, and it will be finalized "soon." He added that his primary objective for pursuing the alliance was to secure the representation of his party (which has an estimated 53,000 members), in parliament. He did not mention any shared policy priorities with the SMK.

Less surprising than the repeated delays in finalizing that alliance is the willingness of the SMK even to consider it in the first place. The ruling party subscribes to Georgian President Eduard Shevardnadze's insistence that Georgia's control of the breakaway Black Sea republic of Abkhazia should be restored through peaceful negotiations, or if that proves impossible, with the help of a Kosova-style peace enforcement operation launched by NATO and/or the UN. Nadareishvili, as the name of his party indicates, advocates a military operation with Georgian participation to achieve that aim. In addition, relations between the Abkhaz leadership-in-exile and the Georgian government have been strained by the mysterious abduction in July in western Georgia of the entire Abkhaz government in exile (see "RFE/RL Caucasus Report," Vol.2, No. 28, 15 July 1999). Nadareishvili has accused a Georgian Defense Ministry battalion of staging that abduction.

This latest delay in finalizing the SMK-AGP alliance, however, may be related to other aspects of the ongoing search for a solution to the Abkhaz conflict. Meeting in Moscow on 4 August, Abkhaz President Vladislav Ardzinba and Georgian Minister of State Vazha Lortkipanidze succeeded in overcoming most, but not all, of their disagreements over the wording of a draft protocol on the return to Abkhazia of ethnic Georgians who fled during the 1992-1993 war or the renewed fighting in May 1998. The Georgian side reportedly undertook to decide within one week whether to endorse the draft protocol, but there have been no subsequent reports that it has indeed done so.

Tough bargaining may be taking place behind the scenes, but it is unclear which side is calling the shots. It would be understandable for the SMK not to want to risk losing the votes of the AGP's 53,000 members, and of the additional 100,000-plus Georgian displaced persons from Abkhazia who regard Nadareishvili as their leader. But at the same time, if Nadareishvili is demanding that Tbilisi take a tougher stance in its ongoing negotiations with Sukhumi, the Georgian leadership may be reluctant to comply.

One further piece of information may be of relevance: on 17 August, "Dilis gazeti" quoted parliament deputy Irakli Batiashvili, a former head of Georgian intelligence, as accusing the Georgian leadership of withdrawing its (clandestine) support for the Georgian guerrilla formations that have operated with impunity in Abkhazia for the past few years, murdering dozens of Russian peacekeepers and Abkhaz policemen. (Liz Fuller)

Georgia Says Abkhazia Harbors Islamic Militants. In an interview with Caucasus Press on 18 August, former Georgian State Security Minister Shota Kviraia claimed that the presence of Islamist militants in Abkhazia (presumably en route for Chechnya or Daghestan, although he did not say so explicitly) constitutes a threat to Georgia. Kviraia said that numerous Wahhabists arrive in Abkhazia from Muslim countries, bringing with them large quantities of weaponry.

The same day, Astamur Tania, who is an advisor to President Ardzinba, denied that there is any danger of Islamic fundamentalism in Abkhazia, noting that "Muslims and Christians live side by side" in Abkhazia, and "the religious factor does not play a leading role" there.

Tania further noted that the ideologists of Islamic fundamentalism in the North Caucasus promote the idea of an Islamic state independent of Russia that would incorporate Abkhazia. Such a state is of no interest to Abkhazia, Tania said, as Abkhazia has already determined its status as an independent republic. (Liz Fuller)

Tensions Emerge In Demirchian's Party. Hmayak Hovannisian, who was one of the founding members of parliament speaker Karen Demirchian's People's Party of Armenia (HZhK), argued on 13 August that the presence of non-reformed former Communist bosses in the former Armenian Communist Party First Secretary's entourage threatens his pre-election pledge to improve life in Armenia.

Hovannisian's criticism of unnamed prominent HZhK members who have "failed to rid themselves of the hypnosis of old approaches" was the latest in a series of mutual verbal attacks between the younger and older generations within the HZhK that could jeopardize the unity of Demirchian's party, which is one of two constituent members of the Miasnutyun bloc - the winner of the May elections. The two party factions are led by Hovannisian and deputy parliament speaker Ruben Miroyan, with the latter believed to enjoy greater support from Demirchian.

"Those individuals are unable to change and must leave the political arena so that [the Armenian] people don't suffer more losses," Hovannisian said in an apparent reference to Miroyan and his allies. But he made it clear that his feud with Miroyan will not cause a split in Miasnutyun as long as Demirchian and the bloc's second co-head, Prime Minister Vazgen Sarkisian, have no major policy differences. Miasnutyun's unity hinges on the success of the government's economic policy, Hovannisian said.

Capitalizing on Demirchian's huge popularity, Miasnutyun campaigned on a largely populist platform that called for greater involvement by the state in economic affairs. But post-election developments indicate that there will no major shift in the economic policy agreed upon with Western lending institutions.

Hovannisian deplored the fact that there has been little change so far in the government's tax collection policy, which he said threatens to shrink the already small middle class in Armenia. He argued that it is the middle class rather than the large "economic monopolies" with government connections that bear the brunt of rising tax rates and tougher methods of tax collection.

A political scientist by training, Hovannisian worked for several years as an expert in the lower house of the Russian parliament before joining Demirchian in 1998 to help him set up the HZhK as a center-left party advocating a "European socialism." He is known as its chief ideologist and the author of its platform. (Ruzanna Khachatrian)

Armenia Still Suffering After-Effects Of Russian Crisis. One year after a grave financial crisis pushed Russia to the brink of economic collapse, Armenia has yet to recover from its repercussions. Having largely maintained relative financial stability, the country has nonetheless failed to avoid an industrial downturn and a sharp decline in vital remittances from thousands of Armenians working in Russia. With the Russian economy reportedly on the mend, the situation in Armenia is beginning to stabilize, but analysts warn that more woes may lie ahead.

Among the factors that helped Armenia fend off a major financial meltdown, economists note the small size of its financial market, low dependence on expensive internal borrowing and the tight fiscal-monetary policies pursued by the government and Central Bank. Indeed, inflation has been at a record-low single-digit level and the exchange rate of the national currency, the dram, has changed little since August 1998.

But the crisis did take its toll on Armenia's financial system. Yields on short-term government bonds shot up from 35 to 60 percent after cash-strapped Russian investors quit the market. As a result, foreign financial companies' share in the Armenian market for state treasury bills has fallen from 60 to 20 percent.

The worst effects of the crisis have been experienced by Armenia's manufacturing sector where many industrial enterprises lost their traditional markets in Russia. Industrial output fell in the second half of last year despite overall economic growth. The decline continued into the first quarter of this year. And Russian industrial groups have had to axe their planned investment projects in Armenia.

According to some estimates, monthly money transfers from Russia have fallen by half to $6 million over the past year. The resulting lower domestic consumption and demand has reduced imports.

In another significant change, Russia and other former Soviet republics have ceased to be Armenia's main trade partners. Trade with CIS countries accounted for 43 percent of the country's external economic turnover in the first half of 1998. The figure was half that during the same period this year. On the other hand, countries of the European Union currently have an all-time high 32 percent share in Armenia's foreign trade.

As the economic decline in Russia bottomed out, Armenian industrial output again started to grow in the second quarter of this year at a robust 7 percent rate. Heghine Manasian, an analyst for the EU's Armenia Economic Trends project, finds this tendency particularly encouraging. But she cautions that the previous cabinet's underestimation of the negative consequences of the Russian crisis has cost Yerevan dearly.

This is evidenced by its serious budget shortfall which has delayed the release of more loans from the International Monetary Fund and World Bank. Manasian says the present government's decision to raise taxes will "reduce economic activity" and push consumer prices up. This will hardly help the Armenian economy. (Atom Markarian)

Quotations Of The Week. "[Daghestan] is radically different from what occurred in Chechnya. That was a war by separatists who had 95 percent of the population behind them. This is aggression by Islamic extremists against Russia." -- Yabloko chairman Grigorii Yavlinskii, quoted in "The New York Times," 15 August 1999.

"Chechnya, North Ossetia, Ingushetia, and Karachaevo-Cherkessia are all links on the same chain. Unresolved problems inevitably lead to new conflicts. Dagestan is an illustration of this." -- Acting Russian Prime Minister Valdimir Putin, addressing the Russian State Duma on 16 August (quoted by Interfax).

"We consider the holding of free and fair municipal elections to be an important step in the democratic process in Azerbaijan. One of the key issues flagged by the OSCE following last year's presidential elections was the composition of the Central Electoral Commission. It indicated that the law on the commission approved by the parliament does not provide for an adequate representation of the major political interests.[...] The OSCE recommended that the law be amended to ensure a fully-fledged multiparty election commission at all levels. [...] We urge the government of Azerbaijan to implement the recommendations of the OSCE." -- U.S. State Department spokesman James Rubin, speaking at a briefing on 18 August.