RFE/RL NEWSLINE Vol. 1, No. 128, Part II, 30 September 1997

A daily report of developments in Eastern and Southeastern Europe,
Russia, the Caucasus and Central Asia prepared by the staff of Radio
Free Europe/Radio Liberty.

This is Part II, a compilation of news concerning Central, Eastern, and
Southeastern Europe.  Part I covers Russia,
Transcaucasia and Central Asia and is distributed simultaneously as a
second document.  Back issues of RFE/RL NewsLine and the OMRI
Daily Digest are online at RFE/RL's Web site:
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RUSSIAN MEDIA EMPIRES. Government and business entities control
many major Russian media. This special report on the RFE/RL Web
site lists the important players.
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Headlines, Part II

*COUNCIL OF EUROPE NOT TO INVITE BELARUSIAN PRESIDENT


*HUNGARY INVITES SLOVAKIA FOR TALKS OVER DAM


*SPEAKER OF BOSNIAN PARLIAMENT DENOUNCES PLAVSIC

End Note
LATVIA LEADS WAY ON PENSION REFORM
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EAST-CENTRAL EUROPE

COUNCIL OF EUROPE NOT TO INVITE BELARUSIAN PRESIDENT. In the
latest international snub to Alyaksandr Lukashenka, Jacques Warin,
the French representative to the Council of Europe, has said the body
will not invite the Belarusian leader to the 10-11 October summit in
Strasbourg. France, which currently holds the rotating presidency of
the council, is the host of that meeting. Russian President Boris
Yeltsin and other leaders of council member states are expected to
attend. In January 1997, the council suspended Belarus's "special
guest" status as a non-member country.

ORT REPORTER SMUGGLES OUT LETTER FROM HRODNO PRISON. Pavel
Sheremet, the Russian Public Television bureau chief in Minsk, has
smuggled out a letter about conditions in the Hrodno detention
center where he is being held, Interfax-West reported on 29
September. The letter, published in "Belorusskaya delovaya gazeta"
the same day, said his fellow prisoners are "quite tolerable." But he
suggested that his experience in prison has left him with "contempt
for this insane authority. Over the past two months, I have clearly
realized that inmates should not be feared. One must fear those who
wear uniforms." Meanwhile, President Lukashenka told Interfax that
he would not discuss the Sheremet case at his 30 September meeting
with visiting Russian Deputy Premier Valerii Serov.

DRUZHBA PIPELINE CROSSING BELARUS NEEDS REPAIRS. Officials at
the Novopolotsk and Homel oil transit enterprises told Belapan on 29
September that the Druzhba pipeline carrying oil from Russia to
Central Europe is at risk unless repairs are made soon. But the
officials, whom the news agency did not name, said they do not have
the money to repair the line. "Gudok" on 27 September reported that
unnamed Western companies engaged in exploiting Caspian oil have
already agreed to finance repairs to the stretch of the Druzhba
pipeline that crosses Ukraine.

KUCHMA WELCOMES RUSSIAN-UKRAINIAN ACCORD. Ukrainian
President Leonid Kuchma said on 29 September that Moscow and
Kyiv have no fundamental differences in approach to foreign policy
questions, ITAR-TASS reported. He was speaking after
representatives to the newly established Ukrainian-Russian
Consultative Council handed him a document calling for the two sides
to raise their "relations to the level of strategic partnership." Kuchma
also said he will make an informal visit to Moscow to meet with
Russian President Yeltsin before his official trip to the Russian capital
in January.

MOSCOW REPORTEDLY DEVELOPS NEW BALTIC POLICY. Russian
Foreign Minister Yevgenii Primakov told his Latvian counterpart,
Valdis Birkavs, in New York recently that Moscow is developing a
new policy toward the Baltic States, BNS reported 29 September.
Primakov said the policy is being developed according to instructions
from Yeltsin. Birkavs told BNS that Moscow's new approach appears
to accentuate the positive rather than harping on the negative. He
noted, however, that Primakov repeated Russia's objections to the
Baltic States' desire to join NATO.

ESTONIAN MANIFESTO FAILS OWING TO 'POLITICAL SUSPICIONS.'
Andres Tarand, one of the signatories to the 26 September Manifesto
of Seven, told BNS on 29 September that the initiative has failed
because of the "suspicions" of many political figures in the country.
The manifesto is entitled "What Kind of a State Do We Want?" and
was circulated by foreign minister Toomas Hendrik Ilves. It warns
that populism could threaten Estonia's progress and calls for a new
focus on domestic problems. But many politicians and commentators
suggest that the document is simply an attempt to launch a new
political party.

LATVIAN, UKRAINIAN LEADERS BACK REGIONAL SUMMIT PLANS.
Ukrainian President Kuchma said that several European countries
have backed his call for a 1999 Baltic-Black Sea summit in Yalta,
Interfax reported on 29 September. His remarks came during a visit
to Kyiv by Latvian President Guntis Ulmanis, who said he too
supports the idea. The 1999 meeting would be a follow up to the
European security conference held in Vilnius in early September.

POLISH PRESIDENT ASKS SOLIDARITY TO FORM GOVERNMENT.
Aleksander Kwasniewski on 29 September asked Solidarity Electoral
Action (AWS) to present its candidate for premier by 17 October,
Reuters reported. AWS chairman Marian Krzaklewski, told journalists
following his meeting with Kwasniewski that the AWS's candidate
will be presented by that time. "We expect that the president will
entrust this candidate with the task of forming a government, " he
added. Krzaklewski refused to reveal the AWS's choice for premier,
confirming only that he will not take the post himself. The AWS won
the elections with 201 seats in the 460-seat lower house but must
form a coalition with smaller parties to have a solid majority. It has
started coalition talks with the 27-seat strong Peasant Party and the
six-seat populist Movement for the Renovation of Poland. But it is
most likely to form a cabinet with the market-friendly Union for
Freedom, which has 60 seats.

U.S. OFFICIAL CAUTIONS CZECHS OVER NATO MEMBERSHIP. Assistant
Defense Secretary Frank Kramer, who recently visited the Czech
Republic, Poland, and Hungary, told Czech officials they need to
increase both military spending (which declined sharply in the past
12 months) and support among Czechs for NATO membership,
Reuters reported on 29 September, quoting a U.S. Defense
Department spokesman. Kramer also noted that the Czech Republic is
lagging behind Poland and Hungary as the three states prepare to
join NATO. Kramer held talks in Prague on 16 September with
Defense Minister Miloslav Vyborny, who is scheduled to join U.S.
Defense Secretary William Cohen and other NATO defense ministers
at a two-day meeting in The Netherlands beginning on 1 October to
discuss NATO expansion.

CHARGES NOT TO BE BROUGHT AGAINST SLOVAK INTERIOR
MINISTER. The Prosecutor-General on 29 September dropped
charges against Interior Minister Gustav Krajci, who had been
accused of thwarting a referendum on NATO membership and direct
presidential elections, TASR reported. The move came because of
insufficient evidence that a crime had been committed. It had been
alleged that Krajci ensured the invalidity of the referendum by
omitting the question about presidential elections from ballot papers.

HUNGARY INVITES SLOVAKIA FOR TALKS OVER DAM. Hungarian
Prime Minister Gyula Horn on 29 September invited his Slovak
counterpart, Vladimir Meciar, for talks to discuss the disputed
Gabcikovo-Nagymaros hydropower project on the River Danube. The
move comes after the International Court of Justice in The Hague
ruled that the two states must respect the terms of the 1977 treaty,
which requires Bratislava and Budapest to negotiate in good faith.
Hungary and Slovakia took the issue to the court in 1992, after the
Slovaks diverted the Danube to Slovak territory to supply a power
station at Gabcikovo. Earlier, in 1989, Hungary had unilaterally
suspended work on its side, citing environmental concerns.

HUNGARIAN FOREIGN MINISTER ON NATO TALKS. Laszlo Kovacs, who
is visiting Washington, says he expects NATO to be satisfied with
Budapest's defense budget. He said Hungary will spend less than
requested by NATO but noted that military spending will be roughly
equal to that of smaller NATO member countries, such as Belgium or
Portugal, Reuters reported. Together with his Polish counterpart,
Darius Rosati, and Czech Deputy Foreign Minister Karel Kovanda,
Kovacs met with National Security Adviser Sandy Berger at the
White House on 29 September. Berger acknowledged that the three
countries are making "serious efforts" to prepare for NATO
membership.

SOUTHEASTERN EUROPE

SPEAKER OF BOSNIAN PARLIAMENT DENOUNCES PLAVSIC. Slobodan
Bijelic, the Bosnian Serb speaker of the all Bosnian parliament, told
SRNA on 29 September that Republika Srpska President Biljana
Plavsic, has already violated the 24 September Belgrade agreement
by postponing parliamentary elections by eight days until 23
November. He said her unilateral move could contribute to the
further disintegration of Republika Srpska and to a "renewed flare
up of emotions." Meanwhile, Momcilo Krajisnik, the Bosnian Serb co-
president of Bosnia, met with Yugoslav President Slobodan Milosevic
in Belgrade on 29 September. According to Tanjug, the two leaders
said that "an important step forward" was taken when the Bosnian
collective Presidency agreed that Republika Srpska citizens will be
able to apply for Yugoslav citizenship in addition to retaining their
status as citizens of Bosnia-Herzegovina.

BOSNIAN SERB PREMIER WARNS AGAINST ARRESTING KARADZIC.
Republika Srpska Prime Minister Gojko Klickovic, speaking on
Montenegrin Television on 27 September, said that arresting
Radovan Karadzic "would lead to a complete collapse of the Dayton
Agreement and new conflicts in Bosnia-Herzegovina." He said the
international community will "gain nothing if they destroy the 80
percent of the Dayton Agreement implemented so far." Klickovic
stressed that the Serbs will not "give up" Karadzic, who, he added,
has withdrawn from all political functions and "is just doing his
earlier job." But Klickovic stressed that Karadzic is still a leader and
that his name cannot simply be forgotten. According to Klickovic,
Karadzic "is now forced to hide, although he is guilty of nothing
except defending his people." The Bosnian Serb premier argued that
no one has any evidence of his guilt, Montena-Fax reported.

KOSOVAR STUDENTS PLEDGE TO PROCEED WITH PROTESTS. Ethnic
Albanian students in Kosovo have rejected pleas by Kosovar leader
Ibrahim Rugova and a visiting delegation of Belgrade-based
diplomats to postpone protests due to begin in seven Kosovo towns
on 1 October. Senior diplomats from the U.S., Russia, and European
countries argued that the protests should not take place between the
first and second rounds of the Serbian elections. The students are
protesting the failure to implement an Albanian-language education
agreement signed in 1996 by Rugova and then Serbian President
Slobodan Milosevic. The diplomats met separately with Rugova and
local Serbian authorities. Veljko Odalovic, the Serb-appointed deputy
leader of Kosovo, told the delegation that ethnic Albanian political
leaders must give up the idea of an independent Kosovo.

MONTENEGRIN PRESIDENT SEEKS MUSLIM, ALBANIAN VOTE. Momir
Bulatovic, who is running for reelection as president, took his
campaign to the multi-ethnic mountain town of Plav near the border
with Albania and Kosovo . He told a crowd of several thousand
people that "what hurts most is the fact that an attempt is being
made to divide us along ethnic lines.... I hope that Muslims and
[ethnic] Albanians will vote like full-fledged citizens in line with
their beliefs," Radio Belgrade reported on 29 September. Bulatovic
added that "enormous pressure is being exerted on Muslim and
ethnic Albanian residents by the secret police," which he accused of
"spreading untruths and fear."

FORMER CROATIAN CHIEF OF STAFF DENOUNCES TUDJMAN. General
Anton Tus, in an interview with the Rijeka daily "Novi list" on 27
September, accused President Franjo Tudjman of having "frequently
subordinated military operations to political decisions" during
fighting against the Yugoslav Army (JNA) and rebel Serbs in 1991-
1992 and 1995. Tus said Tudjman foiled his attempt to lift the
Serbian siege of Vukovar in 1992 by yielding to EU pressure to grant
passage to a humanitarian convoy. Tus says he ignored Tudjman's
orders not to attack JNA barracks and seized military facilities in
Karlovac, Bjelovar, Delnice, Samobor, and Buna. He added that
Tudjman opposed his suggestions, at the end of 1992 and again in
1995, to take western Bosnia and the area along Bosnia's Sava river
area. Tus was Tudjman's chief military adviser until fall 1995.

ALBANIAN SUPREME COURT OVERTURNS CONVICTIONS. The Supreme
Court on 29 September overturned the convictions of all 32 former
communist officials sentenced to prison for crimes against humanity.
Brief verdicts read by Supreme Court Chairman Avni Shehu declared
the former officials innocent of "genocide," for which they had been
sentenced by lower courts. Prosecutors said the charges were
dropped because communist Albanian legislation did not refer to
such a crime. They noted that the former officials should have been
prosecuted for abuse of power, for which many have already been
sentenced. Only four of the former leaders are serving time. Shehu
said they will be freed.

ROMANIA'S FORMER INTELLIGENCE CHIEF ON POLITICAL AIMS. In
an interview with RFE/RL's Bucharest bureau, Virgil Magureanu, the
former director of the Romanian Intelligence Service, has denied he
intends to set up a new political party (see "RFE/RL Newsline," 29
September 1997). Magureanu said he wants to "contribute" to the
setting up of a "center-left" political alliance, which, he believes, will
come into being "within two months." He also said it is not his
intention to head the new alliance but to be a member of its
leadership.

ROMANIAN PRESIDENT PROMOTES EU MEMBERSHIP. Emil
Constantinescu, meeting in Brussels on 29 September with European
Commission President Jacques Santer, again argued in favor of
simultaneous negotiations with all candidates for EU membership, an
RFE/RL correspondent in Brussels reported. Constantinescu also met
with Belgian Prime Minister Jean-Luc Dehaene. In other news, the
Senate on 29 September amended a 1990 law on compensation to
victims of the communist dictatorship. The legislation provides for
monthly payments of 60,000 lei (about $7.50) for each year spent in
prison or as a deportee abroad and 30,000 lei for each year spent in
psychiatric wards as punishment. The law applies also to Romanian
citizens residing abroad.

MOLDOVA CRITICIZES CONTINUED RUSSIAN PRESENCE IN
TRANSDNIESTER. Addressing the UN General Assembly on 29
September, Moldovan Foreign Minister Nicolae Tabacaru said Russia
is stalling over the withdrawal of its troops and weapons from the
breakaway Transdniester region, ITAR-TASS reported. In response,
Aleksandr Gorelik, Russia's deputy permanent representative at the
UN, said the Moldovan position contradicts the agreements reached
at the recent meeting in Moscow between the two countries'
presidents. He said that according to those agreements, the
withdrawal should not be "hasty" in order to prevent "creating a
situation beyond control, especially [given] the large arsenals of
weapons in this area."

RUSSIA WITHDRAWS EQUIPMENT FROM TRANSDNIESTER. Colonel
Aleksandr Baranov, the deputy commander of the Russian troops
stationed in the Transdniester, told journalists on 29 September that
49  railroad cars have been loaded with engineering equipment and
will leave for Russia "in the next days," RFE/RL's Chisinau bureau
reported. Infotag reported the same day that a convoy left on 27
September. Observers note that such equipment has been withdrawn
in the past and that the latest move does not necessarily mean an
end to the dispute over ownership of Russian armaments in the
region. A military adviser to Igor Smirnov, the leader of the
breakaway republic, said the Russian military equipment will be sold
"in line with the agreement reached between Russia and the
Transdniester." The adviser added that "Moldova has no right
whatever" to those weapons.

BULGARIAN NUCLEAR WASTE POSES ENVIRONMENTAL PROBLEM.
Some 15,000 cubic meters of fluid radioactive waste from the
Kozloduy nuclear plant threaten the environment along the River
Danube, BTA reported on 29 September. Citing experts from the
Academy of Sciences, the agency said the waste is being stored in
containers. A reprocessing plant for the waste has not yet been built.
In other news, President Petar Stoyanov on 29 September began a
three-day private visit to Germany at the invitation of the Konrad
Adenauer Foundation. He will meet with German President Roman
Herzog.

END NOTE

LATVIA LEADS WAY ON PENSION REFORM

by Michael Wyzan

All transition countries are dealing with problems posed by the
pension systems they inherited. The difficulties are similar to those
currently experienced by many advanced and developing countries
that now find themselves with systems they cannot afford.
Moreover, those systems provide disincentives for the working-age
population to find employment in the formal sector (meaning those
enterprises that pay taxes and social insurance contributions) and to
save.

The pension systems used by most countries are provided by the
state on a "pay-as-you-go" (PAYG) basis and offer "defined benefits"
to retirees. The pensions paid to current retirees are funded by
contributions from current workers. A retiree's pension is
determined in advance according to various criteria (age, gender,
length of employment). It does not reflect the contributions that the
retiree paid into the system during his working life.

In developed countries, PAYG systems become problematic as the
population ages and the number of beneficiaries increases relative to
the number of contributors. People retiring during the first years of
such a system receive pensions that exceed the amount they paid in.
Later generations, on the other hand, receive less than they
contributed.

Moreover, people can retire before they reach the official retirement
age, with only a small reduction in benefits. To fund such largesse,
high payroll taxes are necessary, which people avoid by working in
the informal sector. Such practice reduces the tax base and requires
still higher taxes on those who cannot avoid them. In Latin America
and the former communist countries, there are additional problems.
In the former East bloc, in particular, retirement ages are low,
especially for women and in certain sectors.

Many countries have reformed their pension systems. In 1981, Chile
replaced its PAYG system with a mandatory savings scheme,
whereby a worker's pension is financed by a savings account into
which he pays during his working life. That pension depends on the
contribution rate, the growth in the worker's salary, the interest rate,
and the number of years at work and in retirement. Such schemes
are "fully funded," because a worker's contribution finances all his
benefits, and are based on "defined contributions," which are
determined in advance.

"Averting the Old Age Crisis," a book published in 1994 by the World
Bank, outlines a recommended "three-pillar" pension reform.
Acknowledging the popularity of PAYG schemes, especially among
older workers, the bank proposes that the first pillar be mandatory,
tax-financed, and publicly managed. The second pillar is mandatory,
fully funded, privately managed, and publicly regulated (as in Chile).
The third pillar differs from the second one largely in that it is
voluntary.

Among transition countries, Latvia was the first to heed the bank's
recommendations on pension reform (with Poland, Estonia, and
Hungary following its lead). Riga benefited from technical assistance
offered by Sweden, which in 1994 passed legislation providing for a
two-pillar system. In the summer of 1995, Latvia passed similar
laws.

A new PAYG system based on "notional accounts" went into effect in
Latvia on 1 January 1996, while a funded scheme will begin in 2000.
Such accounts differ from the standard PAYG system in that an
individual account is maintained for each worker, although benefits
are paid by someone else's contributions.

The contribution rate is 20 percent of income, of which 2 percent will
be channeled to the funded ("second") pillar as of 2000. In time, 6-7
percent of income will go toward the second pillar. Privately
managed individual accounts will be provided to workers born in or
after 1949.

At retirement, a worker receives a PAYG annuity based on the
balance in his notional account and his life expectancy. PAYG benefits
are indexed to price inflation until 2000 and thereafter to both price
inflation and wage growth. Retirement can be either partial or full
after age 60, and additional wages earned during partial retirement
add to the balance of the notional account and increase the benefits.
There is also a "social pension" for the elderly poor who are not
eligible for any other such payment. That pension is currently set at
25 percent of the average wage.

The new system pays benefits to anyone who worked in the formal
sector for 10 years. Participation does not depend on citizenship, so
the system does not discriminate against the Russian minority.

Pension reform is one of several examples of radical economic
measures undertaken by both Latvia and its northern neighbor,
Estonia. Others include a currency board (Estonia), a tough line
toward failed banks (both), and a favorable attitude toward foreign
investors (especially Estonia). It is striking that such measures have
occurred amid unstable political environments, especially in Latvia,
with its frequent changes of ministers and governments. It is even
more striking that Latvia has been able to undertake a more
comprehensive pension reform than more advanced and prosperous
countries such as the Czech Republic or Slovenia--not to mention
France or the U.S.

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


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