RFE/RL NEWSLINE Vol 2, No. 30, Part I, 13 February 1998

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RFE/RL NEWSLINE Vol 2, No. 30, Part I, 13 February 1998

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:
http://www.rferl.org/newsline

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Headlines, Part I

* COHEN, SERGEEV HOLD TALKS IN MOSCOW

* CHUBAIS SAYS FINANCIAL CRISIS HAS PASSED

* RADUEV CLAIMS RESPONSIBILITY FOR SHEVARDNADZE ASSASSINATION BID

* End Note: TER-PETROSSYAN LEAVES A MIXED ECONOMIC PICTURE

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RUSSIA

COHEN, SERGEEV HOLD TALKS IN MOSCOW.  Russian Defense Minister Igor Sergeev
and U.S. Secretary of Defense William Cohen, meeting in Moscow on 12
February, sought to emphasis their common position that Baghdad must allow
UN inspectors access to suspect sites in Iraq. Nonetheless, differences
emerged between the two leaders. Sergeev warned of the implications for
Russian-U.S. relations should the U.S. attack Iraq. Such a development
would put ties between the two countries "back several years," Sergeev
said. The Russian official also stressed that  the Persian Gulf crisis does
not affect only Iraq and the U.S. but "involves the vital interests of
Russia and other countries in the region." He posed the question of whether
"America is ready for all the possible consequences" if it attacked Iraq
and whether such an attack would "help to strengthen stability and security
in the world." BP

RUSSIAN MINISTRY DENIES 'WASHINGTON POST' REPORT. At his 12 February
meeting with U.S. Secretary of Defense Cohen, Sergeev rejected allegations
in a "Washington Post" article the same day that in 1995 Russia had
contracted to sell Iraq equipment that could be used for the production of
biological weapons. Sergeev said "there was no agreement. We had no plans
to reach such an agreement."  Cohen added he had no knowledge of the
allegations and therefore could neither confirm nor deny them. Meanwhile,
Foreign Minister spokesman Gennadii Tarasov said "Russia has never struck
any deal with Iraq contravening the existing [UN sanctions]." Tarasov
denied the article's claim that Russia is informing Iraq about the UN
Inspection Committee's activities. "We resolutely reject this
misreporting," Tarasov said, adding that the article's timing "is not
accidental." Meanwhile, Foreign Minister Yevgenii Primakov told reporters
on 13 February the article is a "provocation." BP

CHUBAIS SAYS FINANCIAL CRISIS HAS PASSED. First Deputy Prime Minister
Anatolii Chubais announced at a 12 February cabinet meeting that the
"second wave of the financial crisis" that began last fall has subsided,
Russian news agencies reported. He said the government and Central Bank
managed to "rebuff" an attack on the ruble in late January and earlier this
month, when the Central Bank raised the refinancing rate to 42 percent to
stave off a ruble devaluation (see "RFE/RL Newsline," 30 January and 2
February 1998). Chubais also noted that yields on government treasury bills
(GKOs) fell from 45 percent on 30 January to 34 percent in recent days. He
said the government intends to meet the goal of bringing GKO yields down to
15-18 percent by year-end. That target was set in the government's 12 major
tasks for 1998, recently approved by President Boris Yeltsin and Prime
Minister Viktor Chernomyrdin. LB

YELTSIN CUTS KREMLIN STAFF. Yeltsin on 12 February issued a decree
dismissing 100 officials in the presidential administration and reducing
the total staff of the administration to 1,945, Russian news agencies
reported. The casualties included Yurii Baturin, Yeltsin's adviser on
security questions since spring 1993, and Boris Kuzyk, adviser on
military-technical cooperation abroad since summer 1994. According to the
13 February "Rossiiskie vesti," the official newspaper of the presidential
administration, the cutbacks are intended to eliminate duplication and
competition within the administration, which, the newspaper said, has led
to the president receiving conflicting information. "Kommersant-Daily"
argued on 13 February that Kuzyk's dismissal is the final blow to the team
of Aleksandr Kotelkin, which oversaw Russian arms exports from late 1994
until August 1997, when Yeltsin sacked Kotelkin as the head of the arms
exporter Rosvooruzhenie (see "RFE/RL Newsline," 22 and 25 August 1997). LB

U.S. OFFICIAL DENIES REPORT ON YELTSIN CAMPAIGN FINANCING. "Nezavisimaya
gazeta" on 13 February quoted an unnamed official in the U.S. embassy in
Moscow as denying that U.S. funds were used to finance Yeltsin's 1996
presidential campaign. "Moskovskii komsomolets" recently alleged that the
U.S. transferred $500 million to Moscow in March 1996 and that large
Russian banks, many of which financed Yeltsin's campaign, acquired that
money (see "RFE/RL Newsline," 11 February 1998). The U.S. embassy official
told "Nezavisimaya gazeta" that the $500 million in new $100 bills were
stored at the embassy because no Russian bank--not even the Central
Bank--would guarantee the security of such a large sum. Russian banks
purchased the new $100 bills for equivalent sums in old bank notes, the
source said. LB

SUPREME COURT HEARS PENSIONER'S CASE AGAINST GOVERNMENT. In the first case
of its kind, the Supreme Court is hearing an appeal from a pensioner
against the federal government, RFE/RL's Moscow bureau reported on 12
February. Zinaida Samokhina is protesting the government's decision to set
760,000 old rubles ($127) as the average wage for the fourth quarter of
1997. That estimate is used to calculate pensions distributed after 1
February 1998, and critics have said the government's estimate is far lower
than the real average wage paid from October-December 1997 (see "RFE/RL
Newsline," 22 January 1998). Nikolai Samokhin, who is representing his
mother in the Supreme Court hearings, told RFE/RL that the government's
action violated various Russian laws and international norms. Government
officials have said adopting a higher wage estimate would bankrupt the
Pension Fund and cause pension arrears to mount. LB

PENSION FUND CHAIRMAN SUING COMMERCIAL BANKS. Vasilii Barchuk has vowed to
file lawsuits against commercial banks, including Sberbank and Menatep, for
allegedly violating the civil code, "Kommersant-Daily" reported on 7
February. Barchuk charges that since the Constitutional Court struck down
an article of that code giving wage payments precedence over tax payments
(see "RFE/RL Newsline," 6 January 1998), the banks have attached a very low
priority to paying contributions to the Pension Fund. Barchuk estimated
that the fund received some 2 billion rubles ($330 million) less than it
should have in January as a result of the court's decision. He has also
asked the Prosecutor-General's Office to examine the legality of the
commercials banks' actions. LB

AUDIT CHAMBER FINDS MASSIVE IRREGULARITIES AT RTR. The Audit Chamber on 12
February announced that it found massive financial irregularities in its
audit of the fully state-owned network Russian Television (RTR), RFE/RL's
Moscow bureau reported. The chamber found that the State Property Committee
failed to monitor the finances of RTR, leading to huge losses for the state
when property, precious metals, and funds were misappropriated. Nikolai
Svanidze, the network's chairman since February 1997, said he entirely
agrees with the Audit Chamber's conclusions. Most of the violations
uncovered by the chamber occurred during Oleg Poptsov's tenure as chairman
of the network, from 1990 until February 1996. The chamber's
representatives cautioned against interpreting their findings as evidence
in support of privatizing the network. They also spoke out against a law
that would ban advertising on RTR, which the Duma recently passed in the
first reading. LB

ORT APPROVES NEW BOARD OF DIRECTORS, CHARTER. Shareholders in the 51
percent state-owned network Russian Public Television (ORT) on 12 February
approved a new board of directors and charter for the network, ITAR-TASS
and "Kommersant-Daily" reported. Vitalii Ignatenko, the director of the
state-run news agency ITAR-TASS, will chair the 11-member board of
directors. The board will also include ORT general director Kseniya
Ponomareva, her deputy Badri Patarkatsishvili, Yeltsin's daughter and
adviser Tatyana Dyachenko, Deputy Prime Minister Oleg Sysuev, government
spokesman Igor Shabdurasulov, presidential spokesman Sergei Yastrzhembskii,
Gazprom-Media head Viktor Ilyushin, and Yurii Dubov, an executive from
Boris Berezovskii's LogoVAZ business empire. Although Berezovskii will not
serve on the board, he attended the 12 February meeting. The new ORT
charter transforms the network from a closed to an open joint-stock
company. LB

CHARGES FILED AGAINST SUSPECT IN JOURNALIST'S MURDER. The
Prosecutor-General's Office has officially charged retired Colonel Pavel
Popovskikh with planning and taking part in the murder of journalist
Dmitrii Kholodov, Interfax reported on 12 February. Kholodov was killed by
a booby-trapped briefcase in October 1994. Popovskikh formerly headed the
intelligence department of the Airborne Troops. Aleksandr Zhilin, who
reports on military topics for "Moskovskie novosti" and RFE/RL, told
RFE/RL's Moscow bureau on 12 February that sources in the Airborne Troops
say investigators searched Popovskikh's office last year. They reportedly
uncovered documents listing the names of journalists who were particularly
critical of former Defense Minister Pavel Grachev and suggested actions to
be taken against those journalists. Grachev was defense minister when
Kholodov, who reported on military corruption, was murdered. LB

SOLDIER APPEALS CONVICTION FOR ARMS DEPOT BLAZE. Sergei Chugaev, who was
sentenced to 10 years in prison last month for starting a fire at an arms
depot in April 1997, has appealed his conviction, "Kommersant-Daily"
reported on 12 February. Chugaev allegedly started the blaze in Bira
(Jewish Autonomous Oblast) by carelessly dropping a cigarette (see "RFE/RL
Newsline," 29 April 1997 and 26 January 1998). He claims he was "set up" by
officers who illegally sold weapons and ammunition and then deliberately
set the fire in order to conceal their crime. However, Oleg Mikhailov, the
presiding judge at the trial at which Chugaev was convicted, told
"Kommersant-Daily" that law enforcement officials have  found no proof to
substantiate those allegations. LB

YELTSIN'S PRIMORE REPRESENTATIVE OFFERS TO GIVE UP SPECIAL POWERS. Viktor
Kondratov, the presidential representative in Primorskii Krai, on 11
February informed the krai Duma that he plans to ask Yeltsin to rescind a
May 1997 decree granting him special powers, ITAR-TASS reported. The
decree, issued during a protracted energy crisis in the krai, transferred
to Kondratov many powers previously wielded by Governor Yevgenii
Nazdratenko, including the authority to supervise how federal funds are
spent in Primore. Nazdratenko claimed the decree was unconstitutional, and
the Federation Council appealed to Yeltsin to rescind it last July (see
"RFE/RL Newsline," 9 June and 8 July 1997). In his message to the krai
Duma, Kondratov explained that he no longer needs the expanded authority
because the legislature can monitor the activities of the Primore
administration, "Kommersant-Daily" reported on 13 February. Many opponents
of Nazdratenko were elected to the krai Duma last December. LB

WOULD-BE CANDIDATES DENOUNCE CAMPAIGN IN MORDOVIA... Nikolai Merkushkin,
the head of the Republic of Mordovia, appears poised for an easy victory in
a 15 February election to retain his post. However, would-be challengers
say  they were excluded from the campaign so that Merkushkin would  have no
genuine competition. The only other registered candidate is Aleksei Sharov,
a little-known director of a macaroni factory. Local observers consider
Sharov a "back-up" for the incumbent, RFE/RL's Moscow bureau reported on 5
February. (Russian law forbids candidates from running unopposed.) Among
the seven candidates denied registration by the Mordovian Electoral
Commission are State Duma deputy Nikolai Medvedev, a well-known local
figure and member of the Russian Regions faction, and Duma deputy Yevgenii
Kosterin, the leader of the Communist Party branch in Mordovia. LB

...WHILE MORDOVIAN PRESIDENT DENIES FOUL PLAY. In an interview with an
RFE/RL correspondent in Mordovia, Merkushkin denied that he used his
political influence to bar prominent opponents from the campaign. Saying he
would prefer Medvedev and Kosterin to be in the race, he accused them of
not wanting to run so as not to reveal the low level of their support.
Medvedev has called for a criminal investigation into recent events in
Mordovia. He told an RFE/RL correspondent in Moscow that his longtime
supporters have been threatened and intimidated. He also charged that there
is no legal basis for holding an election this month in Mordovia. For his
part, Kosterin appealed to the Mordovian Supreme Court after the electoral
commission denied him registration. After losing that court case, he
appealed to the Russian Supreme Court and sent a complaint to the
Prosecutor-General's Office. LB


TRANSCAUCASUS AND CENTRAL ASIA

RADUEV CLAIMS RESPONSIBILITY FOR SHEVARDNADZE ASSASSINATION BID. Speaking
on his private Chechen Television channel on 12 February, radical field
commander Salman Raduev claimed that his Caucasian Home organization was
responsible for the failed 9 February attempt to assassinate Georgian
President Eduard Shevardnadze, Interfax reported.  Georgian Interior
Minister Kakha Targamadze and two senior Chechen officials have expressed
skepticism about Raduev's claim. But Russian Security Council Secretary
Ivan Rybkin told an RFE/RL correspondent in Moscow on 13 February that it
cannot be ruled out that Raduev is speaking the truth. Georgian
investigators on 12 February located the Tbilisi apartment used by the
attackers. That apartment  had been rented by a Chechen woman, according to
Caucasus Press. LF

THREE MORE CONTENDERS FOR ARMENIAN PRESIDENCY... Congresses of the Union
for Self-Determination and the Democratic Party of Armenia have proposed
their chairmen, Paruir Hairikian and Aram Sargsian, as candidates for the
16 March presidential elections. Both men  registered as candidates in the
September 1996 presidential ballot but withdrew their candidacies in
support of Vazgen Manukyan. Hairikyan said he is confident that,  if
elected, he could solve Armenia's most pressing problems within a year.
Sargsian said he would hold the Armenian Pan-National Movement responsible
for its policies, according to Noyan Tapan. Meanwhile, former presidential
adviser Davit Shahnazarian has announced that he will contend the election
as an independent candidate,  RFE/RL's Yerevan bureau reported on 12
February. LF

...BUT DEFENSE MINISTER DECLINES TO RUN. Vazgen Sargsian has rejected a
request by the majority Yerkrapah parliamentary group to run as its
presidential candidate,  Caucasus Press reported on 13 February, citing
Noyan Tapan. Yerkrapah leader Albert Bazeyan said Sargsian considers his
primary responsibility to be strengthening the army and that his candidacy
would substantiate  Western assertions that the "party of war" has come to
power in Armenia. LF

MANUKYAN CALLS FOR NEW CONSTITUTION, PARLIAMENTARY ELECTIONS.  Addressing a
rally of some 20,000 people in Yerevan on 12 February, presidential
candidate Vazgen Manukyan said the upcoming presidential poll must be free
and fair to ensure that the former leadership is prevented from returning
to power, Noyan Tapan reported. Manukyan affirmed that, if elected, he
would  hold pre-term parliamentary elections and amend the country's
constitution. Manukyan said the Karabakh conflict should be resolved
through "peace talks and compromises" rather than unilateral concessions,
according to Interfax. LF

OSKANIAN HOPES FOR NEW KARABAKH PROPOSALS.  Acting Foreign Minister Vartan
Oskanian says he hopes  that when the three co-chairmen of the Organization
for Security and Cooperation in Europe's Minsk Group meet in Paris on 17
February, they will try to come up with a revised peace plan for
Nagorno-Karabakh acceptable to both Yerevan and Stepanakert. But he added
that it will be difficult for the co-chairmen to modify the existing
proposals without retreating too far from their original position. In an
interview published in "Hayastani Hanrapetutyun" on 11 February, Oskanian
said  the current proposals contain both positive and negative points but
that the negative points relate to issues of principle. He said that to
accept those points as a basis for negotiations would be to predetermine
the outcome of the talks and would therefore be unacceptable to
Nagorno-Karabakh. LF

ARMENIA REJECTS AZERBAIJANI REPORT OF FRONTIER SHOOTING.  The Armenian
Defense Ministry on 12 February denied a report by its Azerbaijani
counterpart claiming an Azerbaijani soldier was wounded when Armenian
forces opened fire on Azerbaijani territory two days earlier, Russian and
Armenian agencies reported. Noyan Tapan pointed out that the distance
between the Armenian and Azerbaijani locations named in the Azerbaijani
report is more than 6 kilometers. Such a distance is far greater than the
range of the sub-machine guns reportedly used by the Armenian attackers,
the agency pointed out. LF

AZERBAIJAN, LEBANON SIGN COOPERATION AGREEMENTS. Azerbaijani and Lebanese
government ministers signed agreements on encouraging and protecting
investments, trade and economic cooperation, customs cooperation, and air
travel during the 11-12 February  visit to Baku of Lebanese Prime Minister
Rafik Hariri, Turan and ITAR-TASS reported. Hariri met with his Azerbaijani
counterpart, Artur Rasi-zade, parliamentary speaker Murtuz Alesqerov, and
President Heidar Aliev to discuss the prospects for Lebanese investments in
Azerbaijan and  for purchasing Azerbaijani oil exported via the planned
Baku-Ceyhan pipeline. LF

IRAN ENDORSES AZERBAIJANI-TURKMEN STAND ON CASPIAN. Iranian President
Mohammad Khatami has written to his Turkmen counterpart, Saparmurad
Niyazov, to  express his support for the 5 February agreement signed by the
Azerbaijani and Turkmen foreign ministers on dividing the Caspian Sea into
national sectors, Turkmen Foreign Minister Boris Shikhmuradov told Interfax
on 12 February. Khatami said that the agreement does not contravene
Tehran's principles for Caspian cooperation, but he added that general
decisions must be endorsed by all five littoral states. Iranian Foreign
Minister Kamil Kharrazi is expected to discuss the status of the Caspian
during his visit to Moscow later this month. Russian President Boris
Yeltsin told "Corriere della Sera" on 9 February that a new agreement is
needed on the Caspian's legal status before its resources can be developed.
Yeltsin complained that some European countries engaged in developing
Caspian hydrocarbons are infringing on Russia's national interests. LF

END NOTE

TER-PETROSSYAN LEAVES A MIXED ECONOMIC PICTURE

by Michael Wyzan

        When Armenian President Levon Ter-Petrossyan resigned on 3
February, local and world attention focused on the implications of his
action for attempts to resolve the conflict over Nagorno-Karabakh. But
there has been little discussion, at least outside the country, of the
economic implications of his resignation.
        One reason for optimism is that the government of Prime Minister
Robert Kocharyan has scored a number of successes in economic policy-making
and enjoyed satisfactory relations with the IMF and World Bank.
        The government's achievements include a shift toward market
privatization from a variant based on vouchers, which failed to inject new
capital into enterprises or change the way they are managed. That change in
approach is already paying off. Ninety percent of Armentel, the national
telecommunications company, was sold to a Greek consortium in December, and
the prospects for large-scale investment in mining are improving (a
Canadian company has agreed to invest $200 million in gold mining). Russian
investment is set to flow into the energy sector, and the famous Yerevan
cognac factory is up for tender.
        The regime's other achievements include liberalizing the banking
system, making the country the first CIS state to allow only courts access
to information on bank accounts, improving tax collection, and passing
legislation on tax reform (for example, broadening the base of the
value-added tax).
        At the same time, however, most economic indicators deteriorated in
1997, following three years in which Armenia registered one of the best
performances within the CIS. GDP growth for the first 11  months of 1997
was 2.7 percent, compared with a projected 6 percent for the year as a
whole (and with 5.4-6.9 percent over the previous three years). Growth was
fueled by trade and services, while industrial output stagnated.
        Although the growth figures are respectable by CIS standards,
Armenia is no longer the most dynamic member; the economies of Azerbaijan,
Georgia, and Kyrgyzstan are all growing faster. Another disappointment is
consumer price inflation, which was 21.1 percent for the first 11 months,
compared with a projected 10 percent for the year (and 5.7 percent in 1996).
        The trade deficit for the first 11 months was $608 million, meaning
that the figure for the whole year almost certainly exceeded the 1996 level
of $571 million. Both those figures and the current account deficits of
about $500 million are large for an economy the size of Armenia's. However,
inflows from the Diaspora, international financial institutions, and
foreign countries, especially the U.S.,  have prevented the imbalances from
destabilizing the economy. Virtually the same could be said for the budget
deficit; while it remained high at 6.8 percent of GDP in 1997, it is
nonetheless declining.
        Last November, the World Bank announced it would provide $200
million in 1997-1998 to finance the budget deficit and infrastructural
investment. The IMF has been a bit more standoffish, delaying the release
of the first of two annual tranches of a three-year loan agreed in February
1996 until the second half of 1997 out of concern over tax collection and
public debt. The fund, concerned about the worsening macroeconomic
indicators, energy pricing policy, and the management of privatization, did
not approve release of the second tranche until early February of this year.
        In late 1997, the government acknowledged that the year had been a
disappointment but nonetheless projected major improvements for 1998: 5.2
percent GDP growth, 9 percent inflation, a stable exchange rate, and a
budget deficit of 5.5 percent of GDP.
        In the wake of Ter-Petrossyan's resignation, the most important
factor for the fate of the economy is the identity of the next set of
policy-makers. Vazgen Manukyan, who narrowly lost the disputed president
elections in September 1996, announced on 5 February that he would campaign
for the presidency on a ticket favoring democracy and industrial
development.
        Based on Manukyan's campaign pledges from 1996, industrial
development may mean protectionism in foreign trade, activist industrial
policy (including subsidization of failing enterprises), and closer
economic ties with Moscow. At the more extreme end of the political
spectrum, the communist party claimed last September to have collected 1
million signatures for a petition demanding that Armenia join the
Russia-Belarus union. The Communists have urged a halt to privatization and
a large increase in social welfare payments.
        Armenia, along with other transition nations such as Moldova, is
experiencing "reform fatigue." Generally good economic policy and, at least
until last year, satisfactory macroeconomic statistics have failed to
assuage popular frustration with high levels of poverty and socio-economic
inequality. Despite encouraging signs, total foreign investment remains
tiny and interest among private investors is growing only slowly.
        Kocharyan differs from Ter-Petrossyan in that he argues good
economic policy and reforms aimed at wiping out corruption will suffice to
ensure satisfactory economic performance even without progress on
Nagorno-Karabakh. Armenia's economic results in 1997 leave some doubt about
that argument. If the next government lacks Kocharyan's commitment to
fundamental reform, the country's economic future will look rather cloudy.

The author is an economist based in Austria.


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