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RFE/RL NEWSLINE

RFE/RL NEWSLINE Vol. 1, No. 74, Part II, 16 July1997



This is Part II of Radio Free Europe/Radio Liberty's Newsline.
Part II is a compilation of news concerning Central, Eastern,
and Southeastern Europe.  Part I, covering Russia,
Transcaucasia and Central Asia, is distributed simultaneously
as a second document.  Back issues of RFE/RL NewsLine are
available through RFE/RL's WWW pages:
http://www.rferl.org/newsline/search/

Back  issues of the OMRI Daily Digest are available through
OMRI's WWW pages: http://www.omri.cz/

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Headlines, Part II

*EUROPEAN COMMISSION RECOMMENDS SIX COUNTRIES FOR
MEMBERSHIP TALKS

*ANOTHER EXPLOSION IN REPUBLIKA SRPSKA

 *MILOSEVIC ELECTED FEDERAL YUGOSLAV PRESIDENT

End Note
Bulgaria's Currency Board Gets Off to a Good Start

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EAST-CENTRAL EUROPE

EUROPEAN COMMISSION RECOMMENDS SIX COUNTRIES FOR
MEMBERSHIP TALKS. The European Commission has officially
recommend that six countries be invited for talks on the first wave
of EU expansion: Poland, the Czech Republic, Hungary, Slovenia,
Estonia, and Cyprus. Commission President Jacques Santer presented
the recommendation to the European Parliament on 16 July. EU
leaders are due to make a final decision on which countries will be
invited to early membership talks at a summit in Luxembourg in
December. Also on 15 July, Danish Foreign Minister Niels Helveg
Petersen said Denmark wants the EU to start entry talks with all East
European candidates at the same time.

REACTIONS IN EAST EUROPEAN COUNTRIES TO EU ANNOUNCEMENT.
Jaroslaw Pietras, deputy head in Poland's government committee
overseeing the EU membership drive, said his country feels like a
business that has "received the approval of its auditors." Hungarian
Foreign Ministry spokesman Gabor Horvath on 15 July told
journalists in Budapest that the EU Commission decision is an
indication that Hungary has met the criteria for accession. In Tallinn,
Foreign Ministry spokesperson Ehtel Halliste said Estonia is very
happy about the decision. Czech Foreign Ministry spokesman Vit
Kurfuerst said his country is ready for "difficult" negotiations leading
to EU membership. Meanwhile, the Slovenian parliament on 15 July
overwhelmingly ratified an association agreement with the EU
intended to speed the country's entry into the union. Romanian
officials said any enlargement of the EU in waves would be "artificial
and discriminatory."

BELARUSIAN PRESIDENT, OPPOSITION REOPEN TALKS. Alyaksandr
Lukashenka on 15 July started a second round of talks with
opposition members of the parliament under the auspices of the EU,
ITAR-TASS reported. The EU has called on Lukashenka to declare the
November 1996 referendum void and to restore the democratically
elected parliament that was dissolved after that vote. Meanwhile,
Lukashenka on 15 July signed a decree on new appointments,
Interfax reported. Vladimir Rusakevich, formerly deputy prime
minister responsible for social affairs, was appointed first deputy
head of the presidential administration. Vladimir Zametalin was
appointed deputy prime minister. Until now, he was State Press
Committee chairman.

UKRAINIAN PREMIER-DESIGNATE WANTS TO COOPERATE WITH
PARLIAMENT. Valery Pustovoitenko, who has been nominated by
President Leonid Kuchma as prime minister, told Interfax on 15 July
that the future premier must be able to ensure political agreement
between the government and parliament. "Without agreement with
the parliament, laws cannot be passed and economic problems cannot
be solved," Pustovoitenko said. He also said that if he becomes the
prime minister, he "will have to organize the drafting of tax laws in a
way that will allow us to shape a 1998 budget to the benefit of the
people, the state, and the entrepreneurs." Pustovoitenko said the
policy of radical economic reform, announced by the president in
1994, will not be changed. The parliament is scheduled to discuss his
candidacy on 16 July.

UKRAINIAN PARLIAMENT REJECTS BAN ON NATO TRAINING.
Lawmakers on 15 July rejected a motion by left-wing factions to ban
NATO training on Ukrainian territory later this summer, dpa and
ITAR-TASS reported. The motion was proposed by the Communist,
Socialist, and Agrarian factions. The Sea Breeze exercises are
scheduled at the end of August off Ukraine's Crimean peninsula.
Some 20 ships and 300 marines from the U.S., Ukraine, Bulgaria,
Turkey, Greece, Italy, Romania, and Georgia are expected to take
part. The left-wing factions claimed that the exercises, as well as an
earlier training exercise this month, were unconstitutional. Foreign
Minister Hennady Udovenko assured deputies that the exercises did
not run counter to the Ukrainian Constitution. He said the fact that
Kyiv has not applied to join NATO does not mean it should not
cooperate with the alliance.

ALMOST HALF OF UKRAINIANS WANT TO JOIN RUSSIA-BELARUS
UNION. A poll conducted by the Kyiv-based Social Monitoring Center
in May shows that some 44 percent of Ukrainians support their
country's joining the Russian-Belarusian union, Interfax reported on
15 July. The poll was conducted among 2,007 Ukrainian citizens over
the age of 15 and representing all regions of the country. Of the
respondents, 32 percent said they were against Ukraine joining the
Russian-Belarusian union, while 24 percent said they were
undecided.

ESTONIAN AUTHORITIES INVESTIGATE ALLEGED SALE OF KGB FILES.
Estonian security forces are investigating the alleged sale of two KGB
files reported to contain information on the links of two Estonian
parliamentary deputies to the former communist secret service, BNS
reported on 14 July. Clock collector Mati Zerel claims to have
obtained the two files at a Russian immigrant's antique shop in the
U.S. and to have offered them for sale in a Tallinn daily newspaper.
Zerel also claimed that one of the implicated deputies bought both
files from him. Under Estonian law, persons in possession of KGB files
are obliged to hand them over to the security forces.

ESTONIAN POLICE SEIZE SUSPECTED TERRORIST ACTIVE IN LATVIA.
The Tallinn police have arrested a 35-year-old Estonian businessman
accused of threatening to carry out terrorist acts in Latvia under the
codename "Viktor," BNS and ETA reported on 15 July. The accused is
suspected of threatening terrorist attacks on various buildings in the
Latvian capital, including department stores and hotels, and of
blackmail. In May, some 200 grams of TNT were found in a Riga
store after "Viktor" had warned that a bomb had been placed there.
He was detained on 11 July while attempting to cross the Latvian-
Estonian border in possession of voice transformation equipment.
Negotiations on his extradition to Latvia are under way.

LITHUANIAN WAR CRIMES CASE SUSPENDED INDEFINITELY. The case
against alleged war criminal Alexandras Lileikis has been suspended
indefinitely because of the accused's failing health, Reuters reported
on 15 July. Ninety-year-old Lileikis is charged with genocide in Nazi-
occupied Lithuania in his capacity as head of the Vilnius branch of
the security police. He returned to Lithuania last year after he was
stripped of his U.S. citizenship. A spokesman for the Prosecutor-
General's Office said a medical commission had determined that
investigation procedures had to be halted. He did not say whether
they would be resumed in the future.

CENTRAL EUROPEAN FLOODS UPDATE. The worst of the flooding in
Poland, the Czech Republic, and Slovakia seems to be over, according
to media throughout the region. A spokesman for the Polish Red
Cross told journalists on 15 July that many people are destitute after
the flooding and that the organization has sent over 500 tons of food,
clothing, and water to affected regions. Polish Finance Minister
Marek Belka said that the government will need to borrow hundreds
of millions of dollars for reconstruction and that a temporary
additional tax may have to be imposed on Poles. In the Czech
Republic, people have donated some $3.5 million for flood victims.
The Czech army says more than 30,000 people were rescued in all by
its helicopters and other means. More than 80 people are reported to
have lost their lives in Poland and the Czech Republic. Some areas in
both countries are still experiencing rising waters. Slovak President
Michal Kovac on 15 July visited the village of Brodske, on the lower
part of the Morava River, which is threatened with flooding, as flood
waters move downstream along the river.

REFERENDUM ON POLISH CONSTITUTION DECLARED VALID. The
Supreme Court on 15 July upheld the validity of the 25 May
referendum, which approved the country's first post-communist
constitution, PAP reported. Opponents of the constitution had
challenged the outcome because turnout for the referendum was
only 42 percent. Under Polish law, a plebiscite generally is valid only
when more than 50 percent of eligible voters take part. The Supreme
Court ruled that the requirement did not apply to the referendum on
the constitution because it took place under a separate regulation
that did not specify turnout.

SLOVAK PRESIDENT, PARLIAMENTARY SPEAKER RESPOND TO U.S.
AMBASSADOR'S SPEECH. Michal Kovac told CTK on 15 July that the
U.S. has given "clear and definite" reasons why Slovakia was not
invited to join NATO and that the Slovak government should think
about them. The president was responding to a speech by U.S.
Ambassador Ralph Johnson saying his government had not supported
the entry of Slovakia into NATO because of unsatisfactory and anti-
democratic developments in two areas--the intolerant and unjust
treatment of people whose opinions differ from those of the
government and the growing centralization of power (see "RFE/RL
Newsline," 15 July 1997). Ivan Gasparovic, chairman of the Slovak
parliament, told Slovak Radio on 15 July that "it should be seriously
considered whether it is possible for a foreign diplomat in Slovakia to
speak about things in [such] a way." He argued that "these are [only]
his opinions."

HUNGARIAN PARLIAMENT UNANIMOUSLY ENDORSES NATO
MEMBERSHIP. Lawmakers on 15 July adopted a declaration backing
the country's accession to NATO. All 312 deputies present in the 386-
seat legislature voted in favor and none abstained. Prime Minister
Gyula Horn reaffirmed the government's intention to hold a
referendum on joining NATO by the end of November. In other
developments, the Prosecutor-General's office on 15 July ordered the
Budapest Military Prosecutor's Office to press charges against several
individuals involved in so-called "Operation Birch Tree," overruling
the military prosecutor's decision to close the investigation on
grounds of insufficient evidence (see "RFE/RL Newsline," 12 June
1997).

HUNGARIAN OPPOSITION PARTY LEADER QUITS FACTION. Gyoergy
Giczy, the chairman of the Christian Democratic Party (KDPN) and two
other members of the KDPN faction in the Hungarian parliament,
voluntarily left the faction on 15 July. Earlier that day, the faction
had voted to expel three of Giczy's supporters. Faction leader Tamas
Isepy said the group wished to distance itself from the policies of the
party's national leadership. He said the three expelled members
"share the burden of responsibility for the revocation of the KDNP
membership in the European Union of Christian Democrats" (see
"RFE/RL Newsline," 15 July 1997). The faction also voted to amend its
charter, freeing itself from the obligation to follow policies laid out
by the KDPN national leadership.

SOUTHEASTERN EUROPE

FOREIGN ASSISTANCE FOR ALBANIA? Italian officials said in Rome
on 15 July that an international conference on Albania will take place
on 31 July in the Italian capital. Representatives of individual
countries and international organizations will participate in the
gathering, which will prepare the agenda for an aid donors'
conference in October. In Tirana, foreign diplomats and economists
said that the IMF is in contact with those Albanian officials who are
expected to form a new government shortly. The IMF is ready to
send a delegation to Albania as soon as the security situation
permits. It insists that all remaining pyramid schemes be closed
down before it approves new loans. The Albanian authorities have
been trying to convert the remaining pyramids into legitimate
businesses to allow the companies to generate income that could be
used to repay pyramid investors.

ANOTHER EXPLOSION IN REPUBLIKA SRPSKA. A grenade exploded on
16 July near the offices of international police monitors in Prijedor. It
was the third such explosion in as many days following the funeral of
Simo Drljaca, a former police chief of Prijedor and concentration
camp commander killed by NATO troops on 10 July. Also on 16 June,
a U.S. soldier was stabbed by a civilian in Kladanj. U.S. President Bill
Clinton the previous day had warned the Bosnian Serbs that "it
would be a grave mistake" for them to seek revenge for Drljaca's
death and for the arrest and removal to The Hague of Milan
Kovacevic, another indicted war criminal. In The Hague, spokesmen
for the war crimes tribunal said that Kovacevic is undergoing medical
observation to see if he is fit to stand trial. The spokesmen said
Kovacevic is suffering from what they called "pathological problems."

MILOSEVIC ELECTED FEDERAL YUGOSLAV PRESIDENT. Both houses of
the federal parliament voted overwhelmingly on 15 July to elect
Slobodan Milosevic as president of Yugoslavia for a four-year term
(see "RFE/RL Newsline," 15 July 1997). The Belgrade opposition said
the vote was a sham because Milosevic, who is currently Serbian
president, was unopposed. In Novi Pazar, Muslim opposition leader
Rasim Ljajic commented that the vote means the political and
economic crises will continue. Observers note that Milosevic will now
have to rewrite legislation if he wants to transform the hitherto
ceremonial federal presidency into a real locus of political power at
the expense of the Serbian presidency. It is unclear whether his
enemies could seriously hope to win the powerful Serbian presidency
in the September elections.

KOSOVAR ELECTION BOYCOTT ANGERS SERBIAN OPPOSITION.
Kosovo's ethnic Albanian political parties have decided not to
participate in the Serbian elections scheduled for September, an
RFE/RL correspondent reported from Pristina on 14 July. The
decision could seriously hurt the presidential candidacy of former
Yugoslav Prime Minister Milan Panic, who hoped to put together an
election coalition that would include the Albanians. In Belgrade, the
opposition Serbian Renewal Movement said the Albanians' boycott
plays into the hands of the governing Socialists, "Danas" reported on
16 July. The previous day, the same Belgrade daily cited a new poll
suggesting that 99% of the Kosovo Albanians want only independence
from Serbia.

ETHNIC TENSIONS CONTINUE IN MACEDONIA. Macedonian police on
15 July hauled down an Albanian flag flying over the Debar town
council office building and replaced it with a Macedonian one. Mayor
Kemal Xhafa then removed the Macedonian flag in line with a council
decision. BETA reported later that day that the situation in Debar was
peaceful and that the council remained in session. Elsewhere, Arben
Xhaferi of the Democratic Party of Albanians said recent ethnic
tensions in Macedonia suggest there will be no peace until the
Albanians receive territorial autonomy (see "End Note," "RFE/RL
Newsline," 15 July 1997). He charged that the Macedonian
government has received help from Serbia in preparing for what
Xhaferi called the current clamp down on the Albanians. His charges
have not been independently substantiated.

MONTENEGRIN REFORMISTS ON THE RISE. The Montenegrin Ministry
of Justice on 15 July confirmed the recent move by the anti-
Milosevic wing of the governing Democratic Socialist Party to oust
President Momir Bulatovic as party leader. The ministry added that
Milica Pejanovic-Djurisic of the anti-Milosevic faction is now the
party's legal chairman. Some observers wrote that Bulatovic, who is
Milosevic's main ally in the tiny mountainous republic, has now
completely lost the power struggle. On 16 July, security guards
prevented him from entering the building where the Socialists'
steering committee was meeting. The building also houses
government offices.

NEWS FROM FORMER YUGOSLAVIA. The Sandzak-based Muslim
National Council on 16 July sent a letter to all foreign diplomatic
missions in Belgrade urging them to use their influence to persuade
the Serbian authorities to end repression of the Sandzak Muslims.
"The New York Times" reported on 16 July that France has balked at
a proposed new mission to arrest indicted war criminals. The
previous day, some 2,000 UN peacekeepers began their withdrawal
from eastern Slavonia.

PROTEST AGAINST ROMANIAN AMENDED EDUCATION LAW. Several
hundred people on 15 July demonstrated in Bucharest against the
amended Education Law. The protest was organized by the main
opposition formation, the Party of Social Democracy in Romania
(PDSR). RFE/RL's Bucharest bureau reported that PDSR First Deputy
Chairman Adrian Nastase said Romanians may soon be forced study
their own history and geography in the Hungarian language. A PDSR
delegation handed over a written protest, signed by PDSR chairman
Ion Iliescu, to Education Minister Virgil Petrescu. Efforts by the PDSR
to have the Senate debate the amendments the same day failed
because the chamber's commission has not formulated its position on
the issue. The amended law is to be enforced by government order
and will be debated in the parliament in the fall.

ROMANIAN JUDGES CHALLENGE TREATY WITH UKRAINE. Half of the
judges serving on Romania's Supreme Court have challenged the
treaty signed with Ukraine in an appeal to the Constitutional Court.
RFE/RL's Bucharest bureau reported on 15 July that the 17 judges
say the treaty violates the country's constitution, which stipulates its
territory is "indivisible." A spokesman for the Constitutional Court
told Reuters the challenge is likely to be rejected by the court
because it was submitted after President Emil Constantinescu
promulgated the treaty following ratification by the parliament.

MOLDOVAN PRESIDENT ON NATO. Petru Lucinschi says "allegations
about debates in Moldova on whether to join NATO or not are
inventions," as the issue is not on any one's agenda. Summing up his
visits to Madrid and Salzburg at a press conference in Chisinau on 15
July, Lucinschi said Moldova intends to remain a neutral country and
all the states that recognized its sovereignty also recognized its
"permanent neutrality." Lucinschi said "a kind of Marshal plan" was
necessary to overcome discrepancies between the economically
strong Western Europe and an Eastern Europe "still dominated by the
chaos of transition, where people are losing confidence in a better
life," BASA-press reported.

PROTEST AGAINST SLAVIC UNIVERSITY IN MOLDOVA. The Socialist
Agrarian faction in the parliament, as well as leaders of the Russian,
Ukrainian, Belarusian, and Bulgarian national minorities, have
criticized the foundation of a private Slavic university in Chisinau
(see "RFE/RL Newsline" 14 July 1997). They said the move aims at
making university education in the Russian language dependent on
students' ability to pay for it. In a message to President Lucinschi,
they said he should "use his authority" to persuade Russia to finance
the setting up of a state Slavic University in the academic year 1997-
1998. The rector of the private university, Oleg Babenko, told BASA-
press that the institution has been founded legally by "a group of
persons who have nothing to do with political parties or ethnic
organizations."

BULGARIAN POLICE PROTECT FARMERS. Agriculture Minister
Ventseslav Varbanov says roads in Bulgaria are under police control
in an effort to stop criminal groups from forcing peasants to sell
grain below the market price. Prime Minister Ivan Kostov said he
will not allow a repeat of the bread shortage that occurred last year
and in early 1997. Bulgarian farmers told RFE/RL that they prefer to
leave the fields fallow rather than have their profits siphoned by
firms run by the former communist nomenklatura, as was the case in
the past. Former Prime Minister Zhan Videnov and several of his
ministers are under investigation for granting special export rights to
their associates in 1995 and 1996.

TODOR ZHIVKOV'S " WORST MISTAKE." In an autobiography
published on 15 July, Bulgaria's former communist leader says the
"worst mistake" of his political career was his failure to resist the
reforms imposed by Mikhail Gorbachev and to prevent "Bulgaria's
withdrawal from the socialist path," Reuters reported . He says he
was opposed to "Gorbachev's theory and to its Bulgarian admirers,
who introduced in Bulgaria the same chaos [as elsewhere in the
former communist bloc] in order to keep their posts and benefits."
Zhivkov was sentenced in September 1992 to seven years for
mismanaging state funds, but he never served the sentence on
medical grounds and was kept under house arrest. In 1996, the
Supreme Court overturned the sentence. He remains under house
arrest because he has since been indicted on other charges.

END NOTE

Bulgaria's Currency Board Gets Off to a Good Start

by Michael Wyzan

On 1 July, Bulgaria became the third country in transition--after
Estonia and Lithuania--to adopt a currency board. For an indefinite
period, the lev will trade at 1,000 to the German mark and be fully
backed by the Bulgarian National Bank's (BNB) foreign reserves.
Those reserves consist of foreign currency, precious metals, and
securities denominated in foreign currency.

Under a currency board, the exchange rate of the domestic currency
against a specified world currency (the German mark or U.S. dollar)
is fixed. The only increases in the domestic money supply that are
allowed are those resulting from converting foreign-currency inflows
into domestic currency. In principle, the monetary authorities may
no longer finance government budget deficits.

In the fall of 1996, as Bulgaria's economy plunged into the deepest
economic crisis faced by any European member of the former Soviet
bloc, the IMF made renewed lending conditional on introducing a
currency board. Gross domestic product declined by almost 11
percent in 1996, after rising modestly in the two previous years.
Consumer prices rose by 243 percent in February 1997 alone, after
increasing by only 33 percent in 1995 as a whole. The lev fell from
79 per $1 in April 1996 to almost 3,000 in mid-February 1997, and
the monthly wage plunged from $126 in April 1996 to about $35 in
February 1997.

The deterioration in macroeconomic performance that began in
spring 1996 was triggered by a decline in the BNB's foreign reserves,
which left the central bank unable to defend the lev against
speculative attacks. Such attacks were inevitable in an economy
where the currency unit's nominal value remained unchanged for
long periods, in the face of inflation much higher than in the
country's main trading partners.

Behind this instability lay unreformed enterprises and banks, whose
interaction generated bad debt. When budget subsidies to
enterprises fell to low levels, firms kept operating by borrowing
from banks. Firms often had no intention of repaying the loans, and
most of the larger banks apparently did not object. The banks were
expecting refinancing--that is, lending from the BNB, increasingly
without collateral--and government programs to convert bad debt
into government bonds.

In December 1995, fewer than 26 percent of commercial bank loans
were likely to be serviced in a timely manner, and losses state by
enterprises totaled 4 percent of GDP in 1993 (down from 30 percent
in 1993). Moreover, aggregate banking losses stood at 2-3 percent of
GDP.

The currency board is aimed at addressing such fundamental
problems. Neither direct subsidies from the budget--which may now
run only a small deficit--nor BNB refinancing of commercial banks
will be possible. Does adopting a currency board imply a loss of
sovereignty? States have adopted all manner of monetary regimes.
Those include use of a common currency, as in the case of the 12 CFA
countries in West Africa, or of another country's.

Some observers, however, do not believe that the currency boards
established by transition countries are "true" ones. The national bank
continues to exist and operates "windows" where citizens can
exchange foreign currency. It can still influence the money supply
via reserve requirements. And there is also a banking department at
the BNB that is to act as a lender as a last resort.

For now, all macroeconomic indicators are favorable, with inflation at
0.8 percent in June and the BNB's foreign reserves at record levels.
The credibility of government policy is high, with people rushing to
turn German marks into leva during the board's first days. Interest
rates on the government security market have fallen to under 7
percent a level that neither Estonia nor Lithuania reached until two
or three years after the introduction of their currency boards.
Currency market players now seem excessively optimistic, after
having experienced the opposite for a long period.

In the medium term, however, problems are bound to emerge. The
Baltic experience suggests that inflation will remain rather high (20-
30 percent) for several years. Other factors remain indeterminate.
Who will provide credit to viable enterprises? And will banks
concentrate on buying government securities and eschew lending to
firms? Moreover, it is uncertain what the political consequences of
the inevitable shutdown of enterprises and rising unemployment will
be.

The author is a research scholar at the International Institute for
Applied Systems Analysis in Laxenburg, Austria.





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