RFE/RL NEWSLINE Vol 1, No. 158, Part I, 12 November1997

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 I, a compilation of news concerning Russia, Transcaucasia
and Central Asia. Part II covers Central, Eastern, and Southeastern
Europe 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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Headlines, Part I

* RUSSIA HOPES TO OVERCOME 'DISTRUST' IN BALTICS

* GOVERNMENT APPROVES DRAFT AGREEMENT WITH CHINA

* HILLARY CLINTON IN KAZAKHSTAN

End Note : RUSSIAN GOVERNMENT MOVES TO PROTECT RUBLE

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REGIONAL AFFAIRS

RUSSIA HOPES TO OVERCOME 'DISTRUST' IN BALTICS. Russian
Foreign Ministry spokesman Gennadii Tarasov announced on 11
November that Russia hopes to continue consultations in order to
"transform the Baltic region into a zone of stability, trust, and
cooperation," Russian news agencies reported. Commenting on the
rejection by the Baltic presidents of Russia's offer to guarantee their
countries' security, Tarasov expressed hope that in time "the
interests of good-neighborliness and cooperation" in the Baltic region
will overcome "distrust" and "psychological" issues inherited from the
past. Russian State Duma Speaker Gennadii Seleznev told journalists
the same day that he expects the Baltic States to "play a game with
Russia," judging by their continuing aspirations to join NATO.
Seleznev recalled that President Boris Yeltsin and the Duma have
both said Russia will reconsider the Founding Act signed with NATO
in May if the alliance admits the Baltics. LB

RUSSIA

GOVERNMENT APPROVES DRAFT AGREEMENT WITH CHINA. The
government has approved a draft agreement with China on joint
economic use of some islands located in border rivers, Russian media
reported on 11 November. No details have been released on which
islands are covered by the accord. President Boris Yeltsin and
Chinese leaders discussed the issue during Yeltsin's recent visit to
China. Meanwhile in Japan, visiting Chinese Prime Minister Li Peng
discussed with five former Japanese premiers the possibility of four-
way talks (involving Russia, the U.S., China, and Japan) on promoting
peace and stability in the Pacific. BP

COUNCIL OF EUROPE DELEGATION IN GROZNY. A special commission of
the Parliamentary Assembly of the Council of Europe held talks in
Grozny on 11 November with Vice President Vakha Arsanov, acting
Prime Minister Shamil Basaev, and parliamentary deputies, Russian
agencies reported. The deputies asked the commission to recognize
Chechnya's political independence and argued that adherence to
Islamic law is the only way to combat crime in Chechnya. The
delegation advised, however, that Chechnya's political status can be
decided only jointly by Moscow and Grozny. It advised the Chechens
to seek "a reasonable compromise" with Russia. Some deputies
walked out of the talks to protest that advice, according to Interfax.
LF

CHECHEN PRESIDENT FLIES TO U.S. Aslan Maskhadov on 11
November flew from Turkey to the U.S., Russian media reported. An
unnamed ministry spokesman told Interfax that the trip was not
coordinated with the Russian Foreign Ministry, nor did the U.S.
inform the ministry about it. Chechen First Deputy Foreign Minister
Movladi Udugov said it was a private visit and denied Maskhadov
will meet with any U.S. officials. "Izvestiya," however, reported the
next day that the Chechen president will meet with State Department
Special Adviser for the Newly Independent States Stephen
Sestanovich. Asked in Grozny whether Maskhadov plans to remain in
the U.S. as "honorary president in exile," Maskhadov's press
spokesman Kazbek Khadzhiev said the Chechen president is the most
influential leader in Chechnya, and "will never desert his people,"
Interfax reported. LF

MINISTERS INSIST WAGE ARREARS TO BE PAID. First Deputy Finance
Minister Vladimir Petrov announced on 11 November that the
government will pay all wage arrears to state employees by the end
of this year, Russian news agencies reported. Petrov said such wage
arrears currently total some 9.3 trillion rubles ($1.6 billion).
Meanwhile, Prime Minister Viktor Chernomyrdin announced during a
visit to the Komi Republic that once the back wages have been paid,
the government will begin to raise wages, pensions, and stipends
paid out of the federal budget. The same day, Chernomyrdin said the
government has allocated 250 billion rubles toward paying back
wages to coal miners in the Vorkuta area of Komi. LB

TAX SERVICE CHIEF OPTIMISTIC ON NEW COLLECTION EFFORTS. State
Tax Service chief Aleksandr Pochinok predicted that new measures
to boost tax collection will significantly increase the government's
intake of "real money," RFE/RL's Moscow bureau reported. Pochinok
praised a recent presidential decree prohibiting the government
from canceling debts to enterprises against taxes owed (see "RFE/RL
Newsline," 10 November 1997). Pochinok said the 10 largest Russian
taxpayers have frequently used offsets but will now be forced to
come up with cash to pay their taxes. Pochinok also said some oil
companies, among the country's largest tax debtors, will be allowed
to export more oil if they stick to a schedule for paying tax arrears.
Speaking in Komi on 11 November, Chernomyrdin said he will sign a
"radical" government plan on improving tax collection within a few
days. He gave no details except to say the plan does not introduce
any new taxes. LB

MINISTER OUTLINES PRIVATIZATION PLANS. State Property
Minister Maksim Boiko announced on 11 November that
privatization brought more than 12 trillion rubles ($2 billion) to the
federal budget during the first 10 months of 1997, RFE/RL's Moscow
bureau reported. Although that figure exceeds total planned
revenues from privatization for 1997, the state hopes to acquire
another 10 trillion rubles from privatization sales before the end of
the year. (Privatization proceeds will make up part of the shortfall
caused by low tax collection rates.) Before the end of the year, Boiko
said, the state will sell a 16 percent stake in the regional utility
Lenenergo as well as stakes in four oil companies: 0.96 percent of
LUKoil; 48 percent of the Tyumen Oil Company;19.68 percent of
Slavneft (a Russian-Belarusian company); and 34 percent of the
Eastern Oil Company. LB

STATE WILL NOT SELL MORE SHARES IN ORT. Boiko also said the
state will not sell any of its shares in Russian Public Television (ORT)
once the network is transformed from a closed to an open joint-stock
company. He noted that the transformation, which is expected to be
approved at a 13 November shareholders' meeting, will permit
private companies to sell their shares in ORT if they wish. However,
he said the state will keep its 51 percent stake in the network. Boiko
also explained that a new council of government representatives at
ORT, which he chairs, is intended to coordinate the policy of various
government ministries and agencies toward ORT (see "RFE/RL
Newsline," 4 November 1997). LB

CONSTITUTIONAL COURT RULES BORDER TAX LEGAL. The
Constitutional Court on 11 November ruled that forcing citizens to
pay a tax for filling out documents upon crossing the Russian border
does not violate the constitutional right to leave and enter the
country freely, "Nezavisimaya gazeta" and "Kommersant-Daily"
reported. Khabarovsk Krai Governor Viktor Ishaev filed the court
appeal, saying the border tax violates constitutional and international
norms and would harm the local economy in Khabarovsk. The judges
rejected arguments that the border tax is illegal but agreed with
Ishaev's claim that taxes may be established only by federal law.
(The current law on the state border permits the government to
determine the level of the border tax.) Consequently, although a
government resolution sought to impose the border tax as of 1
November, that tax cannot be levied until a specific law has been
adopted by the parliament and signed by the president. LB

KHAKAMADA SEEKS FUNDING TO SUPPORT SMALL BUSINESSES. Irina
Khakamada, who heads the State Committee on Support and
Development of Small Businesses, is seeking 218 billion rubles ($37
million) in budget funding for her committee next year,
"Kommersant-Daily" and "Izvestiya" reported on 12 November. The
committee did not receive any budget funding in 1997 and was not
included in the expenditures foreseen in the original draft budget for
1998. But Khakamada noted the Duma has proposed a budget
amendment that would provide funding for the committee. She
added that money will not be given directly to businesses but will be
used to create regional centers where entrepreneurs can seek
information and legal advice. LB

PROSECUTOR-GENERAL ON FIGHTING HATE CRIMES. Prosecutor
General Yurii Skuratov says his office, the Justice Ministry, and the
Federal Security Service will set up an interdepartmental group to
combat hate crimes, Russian news agencies reported on 11
November. Attending a board meeting of the Russian Jewish
Congress, Skuratov said that during the last two years, the
Prosecutor-General's Office has opened 49 criminal cases on charges
of inciting ethnic, racial, or religious hatred. But he said law
enforcement agencies have had trouble investigating such crimes, in
part because Russian law lacks a precise definition of fascism. LB

JUSTICE MINISTRY SEEKS RIGHT TO REGISTER PRINT MEDIA. Justice
Minister Sergei Stepashin supports amending the law on the mass
media to force publications to register with his ministry as well as
with the State Press Committee, "Izvestiya" reported on 12
November. Stepashin said his ministry would exclude publications
that promote fascism or other radical ideologies. He added "this is in
no way control over the mass media. It will not affect respectable
newspapers and magazines, it will affect primarily small papers and
fascist leaflets, the majority of which are printed underground." LB

CONFUSION OVER SOBCHAK. The condition and whereabouts of
former St. Petersburg Mayor Anatolii Sobchak remain unknown
following conflicting media reports. Sobchak's wife, Duma deputy
Lyudmila Narusova, told Interfax on 10 November that heart surgery
had been performed on Sobchak. Speaking to ITAR-TASS the next
day, she said her husband is still in the hospital and is preparing to
undergo unspecified medical treatment. Also on 11 November,
representatives of the American Hospital in Paris confirmed Sobchak
sought treatment at the hospital but denied he has undergone heart
surgery. AFP quoted American Hospital representatives as saying
Sobchak checked out of that hospital after a series of tests showed
"everything was fine." Some Russian observers believe Sobchak has
used his heart problems as a pretext to escape questioning by law
enforcement authorities. LB

CHERNOMYRDIN SAYS POLICY ON FAR NORTH TO CHANGE. Speaking
to students in Komi, Chernomyrdin said the government will become
more selective in its support for industry in the far north, ITAR-
TASS reported on 11 November. Unprofitable enterprises, including
some coal mines, will be closed, he said. In addition, residents of
cities and villages that have poor economic prospects will be moved
to more southern regions. Deputy Prime Minister Ramazan
Abdulatipov, who recently visited Magadan Oblast, has also argued
that current government policy toward the far north is inefficient,
"Izvestiya" reported on 12 November. Rather than dividing Russia
into northern and southern regions and giving more financial support
to the north, Abdulatipov says, the government should provide more
help to all regions in need. Abdulatipov is from the North Caucasus
republic of Dagestan, which is one of the poorest Russian regions. LB

TULEEV APPOINTS NEW MAYOR OF SIBERIAN TOWN. Kemerovo
Oblast Governor Aman Tuleev on 11 November appointed Bakhtiyar
Mamaev as the acting mayor of Leninsk-Kuznetskii, "Kommersant-
Daily" reported. Up to now, Mamaev has been first deputy mayor of
the city, whose elected mayor, Gennadii Konyakhin, is in custody
awaiting trial on corruption charges. Before his arrest, Konyakhin
appointed deputy Mark Guskov as acting mayor. Tuleev's action is in
apparent conflict with the law on local government, which says that
regional authorities can terminate the authority of an elected local
leader and appoint a replacement only following a court ruling (see
"RFE/RL Newsline," 21 October 1997). Konyakhin told "Kommersant-
Daily" that he plans to contest Mamaev's appointment in court. LB

DAGESTAN ENCOUNTERS PROBLEMS IN CREATING SELF-DEFENSE
FORCES. The Russian Prosecutor-General's Office has tasked its
Dagestani counterpart with determining whether the Dagestani
government's decision to create a 5,000-strong volunteer militia to
patrol the border with Chechnya violates the Russian Constitution,
ITAR-TASS reported on 11 November. The issue is still being
discussed by the Dagestani Security Council, since the new militia
would necessitate legalizing illegal and criminal armed bands,
according to "Nezavisimaya gazeta" on 12 November. Meanwhile,
Dagestani Security Council Secretary Magomed Tolboev has said
spiraling tensions between Dagestan and Chechnya are the direct
consequence of Chechnya's aspiration to act as leader of the North
Caucasian peoples, Interfax reported. LF

TRANSCAUCASUS AND CENTRAL ASIA

HILLARY CLINTON IN KAZAKHSTAN. U.S. first lady Hillary Clinton
arrived in the Kazakh capital on 11 November on the first leg of her
tour of five CIS countries. Addressing a group of young people,
Clinton said she is impressed with "what has been accomplished in
just six years [of independence]." She also attended the opening of a
women's health care center that was built under a sister-city
program between Almaty and Tucson, Arizona. The next day, Clinton
visited the Kazakh Academy of Sciences, where she addressed a
"Women in Politics" conference. "A country's progress depends on the
progress made by women." Later on 12 November, she arrived in the
Kyrgyz capital. BP

GEORGIAN PRESIDENT IN ALMATY. During Eduard Shevardnadze's
first official visit as president to Kazakhstan on 10-11 November,
Georgian and Kazakh leaders signed 16 cooperation agreements on
trade, economic, scientific, and military cooperation, Russian agencies
reported. Shevardnadze and his Kazakh counterpart, Nursultan
Nazarbayev, discussed prospects for building a pipeline beneath the
Caspian to facilitate the export of Kazakh oil via Georgia. They also
discussed Kazakhstan's possible accession to the 1996 Sarakh
agreement between Azerbaijan, Georgia, and Turkmenistan on
transport and communications, according to "Nezavisimaya gazeta" of
12 November. That accord would enable Kazakhstan to participate as
a full member in the TRASECA transport project. LF

GEORGIA ABOLISHES DEATH PENALTY. The parliament on 11
November passed a draft law proposed by President Shevardnadze
abolishing capital punishment, Russian agencies reported. Mikhail
Saakashvili, the chairman of the parliamentary committee for
constitutional and legal problems, told CAUCASUS PRESS that Georgia
is the second former Soviet republic to abolish the death penalty,
after Moldova. Shevardnadze declared a moratorium on executions in
December 1996. LF

GEORGIAN OPPOSITION CLOSES RANKS. Addressing a congress of
Georgian displaced persons from Abkhazia in Tbilisi on 11 November,
radical Georgian opposition leaders proposed that nationalist forces
should jointly contend the next parliamentary elections, CAUCASUS
PRESS reported on 12 November. Nodar Natadze said the parties
should demand Georgia's withdrawal from the CIS and the
withdrawal of Russian troops from Georgia. He also urged that Tbilisi
reject the confederation model of resolving the Abkhaz and South
Ossetian conflicts. Meanwhile, former parliamentary speaker
Vakhtang Goguadze has joined the new For Georgia's Salvation bloc,
led by the United Communist Party of Georgia, according to
"Nezavisimaya gazeta" of 12 November. Goguadze quit the ruling
Union of Citizens of Georgia in 1995 to form the Tanadgoma union,
which won 3 seats in parliamentary elections that year. LF

UPCOMING GEORGIAN-ABKHAZ TALKS IN JEOPARDY? CAUCASUS
PRESS on 12 November quotes Georgian Ambassador to Moscow
Vazha Lortkipanidze as saying that Abkhazia is trying to postpone
the talks scheduled to open in Geneva on 17 November on resolving
the Abkhaz conflict. Lortkipanidze said that the Abkhaz leadership
objects to the so-called Friends of Georgia (which include the U.S.,
France, Germany, and the U.K.) participating as mediators rather than
observers. He said that Georgia rejects that restriction. LF

KARABAKH DEBATE CONTINUES. Andranik Hovakimian, the deputy
chairman of the board of the ruling Armenian Pan-National
Movement, has suggested that the key to resolving the Karabakh
conflict is to "work out a new type of status for Karabakh" that
entails neither outright independence nor autonomy, Noyan Tapan
reported on 11 November. Meanwhile former presidential adviser
Ashot Manucharyan has claimed that President Levon Ter-
Petrossyan is acting under instructions from "certain international
centers" in advocating a compromise solution to the conflict.
Manucharyan, who is political secretary of the recently established
Union of Socialist Forces , warned that a "phased" solution to the
conflict would lead to civil war because the majority of Armenia's
population rejects that option. LF

US ENERGY SECRETARY IN YEREVAN. Federico Pena arrived in
Yerevan on 11 November from Ankara, where he discussed Turkey's
role as a transit country for Central Asian oil and gas and expressed
the U.S.'s support for the planned Baku-Ceyhan export pipeline, the
"Turkish Daily News" and ARMENPRESS reported. Pena met with Ter-
Petrossyan and Armenia's foreign and energy ministers to discuss
Armenia's role in the planned east-west transport corridor. In a
statement issued by the U.S. Embassy in Yerevan on 11 November,
Pena affirmed that the "time is right to think seriously about creating
or improving electrical power, oil, and natural gas infrastructure
linkages among Armenia, Georgia, Turkey and Azerbaijan." LF

AZERBAIJAN RATIFIES ANOTHER OIL CONTRACT. The parliament on
11 November ratified a $4 billion contract signed by Chevron and the
Azerbaijani state oil company SOCAR in August, Turan and Russian
agencies reported. Chevron has a 30 percent stake to develop the
Apsheron (formerly Zeinalabdin Tagiev) field, which has estimated
reserves of 120 million metric tons. SOCAR has 50 percent stake,
while France's Total later acquired 20 percent. Also on 11 November,
Aleksandr Zhirov, the director-general of Chernomortransneft, said
shipment of Azerbaijan's Caspian oil by tanker from Novorossiisk will
begin on 10 December, according to ITAR-TASS. Speaking in
Syktyvkar, Russian Prime Minister Viktor Chernomyrdin affirmed
that the northern route via the Russian Federation is commercially
the best one for the export of Azerbaijan's Caspian oil. LF

END NOTE

RUSSIAN GOVERNMENT MOVES TO PROTECT RUBLE

by Stephanie Baker

        Reacting to persistent jitters on world financial markets,
Russia's Central Bank announced on 10 November that it will raise
interest rates and alter its ruble policy next year to ward off any
speculative attacks on the currency.
        Central Bank chairman Sergei Dubinin said the temporary
interest rate hike, combined with a more flexible exchange-rate
policy, would shore up investor confidence in Russia, following the
crisis on world financial markets over the past two weeks.
        Dubinin said at a joint news conference with First Deputy Prime
Minister Anatolii Chubais that, as of 11 November, the Central Bank
will raise its key refinancing rate, which guides interest rates, to 28
percent from 21 percent. He said the tightening of monetary policy is
a temporary move designed to protect the ruble, which has come
under pressure owing to recent upheavals on the financial markets.
        Dubinin added that the Central Bank's decision to change its
ruble policy in 1998 will bolster trust in the currency. Under the new
policy, the Central Bank will abandon its ruble corridor, allowing the
currency to fluctuate by 15 percent in either direction of a so-called
pivot rate. That rate will be set at 6.1 rubles to the U.S. dollar and
will inch up to 6.2 rubles to the dollar from 1998-2000.
        The new policy coincides with the government's plans to lop
three zeroes off the ruble beginning on 1 January 1998, making
1,000 old rubles equal to one new ruble.
        Russia has kept to a crawling-peg exchange-rate policy since
1995, allowing the ruble to devalue gradually against the dollar in
line with inflation. The government, which has successfully brought
down rampant inflation, is targeting a rate of 5-7 percent in 1998.
        Dubinin said he expected the ruble to devalue by 2-5 percent
in 1998, depending on inflation. He tried to dispel fears that the new
ruble policy would lead to major fluctuations in the exchange rate,
saying the Central Bank's hard-currency reserves stood at a healthy
$22.6 billion as of 1 November. "No leaps of the currency-exchange
rate will be allowed," he said. "Neither today, nor tomorrow, nor on
New Year's Eve will there be a dramatic devaluation."
        But a Central Bank statement acknowledged that the ruble
could come under pressure, alluding to trends in other emerging
markets such as Brazil and South Korea. Analysts said the bank's
decision essentially to widen the band in which the ruble trades
could lead to greater volatility but that the move to a more flexible
exchange rate regime would send the right signal to speculators.
        Peter Boone, an economist at Brunswick Capital Management,
said the wider band means the Central Bank may allow the ruble to
depreciate in the case of a speculative attack. But he said given
Russia's strong economic fundamentals, the ruble would withstand
any such attack and quickly bounce back.
        Boone said Russia's decision to adopt a more flexible ruble
policy is a response to currency problems in other emerging markets,
such as Southeast Asia, where rigid exchange rate regimes have
attracted the attention of speculators. "It spells the end of very
tightly controlled exchange-rate regimes in countries open to foreign
capital flows," he commented.
        In addition to raising the refinancing rate, the Central Bank also
said it would increase its Lombard rates, used for lending to
commercial banks, and increase the hard-currency reserve
requirements for commercial banks to 9 percent from 6 percent,
beginning on 12 November.
        The move contradicts the government's previously stated aim
of reducing interest rates to free up funds for desperately needed
investments in the economy. But Dubinin and Chubais said the
temporary interest rate hike is necessary to help lure back funds
into the government treasury bill market, which has been hard hit
by the worldwide flight from emerging market assets.
        As Chubais put it: "Russia is not an island cut off from the rest
of the world." He said the hike is a temporary measure designed to
shield Russia from the crisis on international financial markets and
will be reassessed once markets stabilize.
        Economists applauded the government's decision to raise
interest rates, saying it will help stem the flow of funds out of
treasury bills. Brigitte Granville, chief Russia economist at J.P. Morgan
in London, said a currency crisis might have occurred if the Central
Bank had not tightened monetary policy. Foreign investors, who want
to leave the treasury bill market, need to sell rubles and buy dollars,
putting pressure on the ruble to devalue.
        Several emerging market economies, such as Brazil and
Ukraine, raised interest rates, making Russian treasury bills look less
attractive to foreign investors. Although the interest rate hike caused
treasury bill prices to plummet, the government hopes the higher
yields will tempt investors back, when it issues new bills.

The author is a Moscow-based RFE/RL correspondent.

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