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Caucasus Report: July 14, 1998

14 July 1998, Volume 1, Number 20

Georgia "On The Edge of the Abyss." On 7 July, Georgian parliament speaker Zurab Zhvania met with representatives of Georgia's NGOs to discuss the causes of the current political crisis and ways to overcome it. The following day, RFE/RL's Tbilisi bureau hosted a roundtable between two of the participants in that discussion and Mikhail Machavariani, general secretary of the ruling Union of Citizens of Georgia (SMK).

All three participants agreed with Zhvania's assertion that one of the primary causes of the incipient crisis in the reform process is the ineffectiveness of the executive branch. As Zhvania put it "The fact that laws are not implemented has generated a lack of popular trust in the leadership." But Davit Usupashvili, a member of the board of the Association of Young Jurists, argued that part of the blame also lies with the SMK, affirming that "the past three years have demonstrated that it is impossible to bring the country out of crisis using the methods which Zhvania's team chose." Usupashvili also accused the SMK of having made "too many compromises," both within its own ranks and within parliament. Machavariani, for his part, admitted that "mistakes and wrong decisions are inevitable during the process of formation of statehood," and, specifically, that the SMK had not made the most effective use of its leverage within parliament. He added that the reformist wing of the SMK does not enjoy broad support from the population at large, or even from its own rank and file, and admitted that the mentality of local administrators in several dozen districts is "fundamentally different" from that of the party's leadership.

Both Usupashvili and Davit Darchiashvili, director of the Research Centre for Civil-Military and Security Issues, posed the question of how those local administrators came to occupy positions of power. Darchiashvili stressed the need for the SMK to cleanse its own ranks, and to give a clear answer to the questions: is the SMK capable of controlling the executive or not? And, which ministers and local administrators were appointed by the SMK? Usupashvili further advanced the hypothesis, which he claimed is shared by many political observers, that Georgian President Eduard Shevardnadze and parliament leaders "do not constitute a single cohesive team."

Returning to the current situation, Usupashvili defined the most crucial issue as "preventing the crisis in the reform process from evolving into panic." This theme was echoed by Machavariani, who defined the primary function of the SMK in the present circumstances as "ensuring that the country can continue to walk along the edge of the precipice without falling into the abyss." (Liz Fuller)

Georgia, Armenia Face Up To Corruption Within Military. Recent press conferences by Georgian Defense Minister Davit Tevzadze and military procurator Badri Bitsadze shed light on widespread corruption within the country's armed forces, according to an RFE/RL correspondent in the Georgian capital. Bitsadze announced that Otar Chkhartishvili, dismissed last month earlier as commander of the Georgian navy after serving in that post for less than one year, had been charged with embezzlement. Audits indicate that theft has reached alarming levels: items unaccounted for during a recent inventory included 17,000 detonators, more than 3,200 mines, and over 6 tons of dynamite -- enough to blow up half of Tbilisi. Revaz Adamia, chairman of the Georgian parliament's Commission on Defense and Security, commented that "If things continue like this, parliament will no longer be able to ask the Finance Ministry to increase funding for the armed forces."

A similarly disquieting picture is emerging in Yerevan following the death on 28 June of Colonel Mavrik Avetisian, head of the Defense Ministry's financial department, on the eve of a planned audit. The Armenian press has expressed skepticism over a ministry statement released the following day describing Avetisian's death as suicide, RFE/RL's Yerevan bureau reported. Four men, including a defense ministry acountant and an Armenian bishop, have since been arrested on suspicion of conniving with Avetisian to embezzle $1 million from the ministry's funds. (Liz Fuller)

How Impressive Is Armenia's Economic Upswing? As President Robert Kocharian's hundredth day in office approaches, senior Armenian government officials are already claiming significant achievements and economic improvement. Prime Minister Armen Darpinian has been citing statistics that show six percent economic growth, 40 percent rise in exports and a slight decline in imports and creation of new jobs in the first five months of the year. The government says its new privatization strategy has attracted more direct foreign investment. And this in turn should bring more revenues to the state budget.

But a closer look at the economy reveals a more mixed picture, full of uncertainties and unanswered questions. First of all, a growth rate of 6 or even 7 percent cannot be considered spectacular by Armenian standards given the slump of the early 1990s. The economy has been growing at a similar rate for the past few years, but this has not had a decisive impact on living standards. Economists say 10 to 12 percent steady growth is needed for most Armenians to feel tangible benefits.

Positive changes have been registered in the taxation system, with lower rates introduced and the tax base expanded. Social security payments have been reduced to a more reasonable level. But changes in the tax legislation are made so frequently and rapidly that businessmen simply cannot keep up with them. Those laws remain very difficult to understand, which gives tax officials the upper hand in their dealings with uninformed and often times ignorant entrepreneurs. The former are not always interested in promoting awareness among the business community of the complicated rules of the game.

The government does have reason to claim an improvement in the foreign trade sector. Consumer goods are increasingly replacing scrap metal as a key item in Armenia's exports. Likewise, local food-producing industries are getting stronger, gradually driving out importers. But this tendency is unlikely to persist unless serious changes are expedited in the customs policy. In some cases, import duties are ridiculously low, leading to an abundance of foreign goods sold at dumping prices. Moreover, corruption and incompetence remain endemic among customs officials. Last week's sacking of the customs chief, Mikael Makarian, was Prime Minister Darpinian's first personal setback, given that Makarian was a close friend of his.

No progress at all has been made in areas like the energy sector, social policy, or agriculture. In the latter case, no government effort has been seen to create the adequate wholesale market infrastructure so desperately needed by the Armenian farmers. On balance, it can be concluded that encouraging developments are taking place in the Armenian economy, but it is unclear how stable and sustainable they will prove to be. (Vahan Hovannisian)

World Bank Official Reviews Lending Plans with Azerbaijani President. World Bank managing director for operations, Hajo Koch-Weser, met Azerbaijani President Heidar Aliyev in Baku on 6 July to review the bank's recently adopted country strategy for Azerbaijan. Under that strategy, the bank's International Development Association (IDA) expects to make loans totaling $300 million to Azerbaijan over the next three years.

A World Bank spokeswoman said the loans will be designed to underwrite agricultural development, repair irrigation systems, improve medical facilities, rebuild education and launch post-privatization programs. Last week, IDA approved a $20 million credit to Azerbaijan to help resuscitate its sturgeon production.

The IDA loans, at the rate of about $100 million per year, will be approved only if Azerbaijan continues to implement reforms, Koch-Weser emphasized to Aliev. The two men also discussed the idea of creating a special oil fund into which Azerbaijan would deposit profits from its oil industry in order to ensure that those earnings are distributed among all sectors of Azerbaijani society. (Robert Lyle)