RFE/RL NEWSLINE Vol 2, No. 37, Part I, 24 February 1998

___________________________________________________________
RFE/RL NEWSLINE Vol 2, No. 37, Part I, 24 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
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Headlines, Part I

* YELTSIN HINTS HE MAY SACK SOME MINISTERS

* RUSSIA, SYRIA MEND FENCES

* ZVIADISTS RULE OUT RELEASING MORE HOSTAGES

* End Note: GEORGIA'S FAST-GROWING ECONOMY

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RUSSIA

YELTSIN HINTS HE MAY SACK SOME MINISTERS. President Boris Yeltsin announced
on 23 February following a meeting with Prime Minister Viktor Chernomyrdin
that "certain people will have to answer" for their actions at a 26
February cabinet meeting, and that he will "immediately make a decision" on
their future, Russian news agencies reported. The government is to report
on its 1997 performance during that meeting, which was initially scheduled
for early December but has been postponed several times. In recent weeks,
Yeltsin has said "one or two faces" in the government may change but has
indicated he will not fire First Deputy Prime Ministers Anatolii Chubais
and Boris Nemtsov (see "RFE/RL Newsline, 5 and 6 February 1998). During a
17 February speech to both houses of the parliament, Yeltsin said "we will
have another government" if ministers fail to meet certain economic goals.
LB

DEPUTY PREMIERSHIPS TO BE ABOLISHED? Former presidential adviser Georgii
Satarov, who helped draft Yeltsin's speech to the parliament, told
ITAR-TASS on 19 February that Yeltsin is planning an "administrative
reform" that may involve eliminating the posts of deputy prime ministers. A
65-page document circulated among parliamentary deputies on 17 February
referred to plans to make ministries the "supporting elements" of the
government. According to Satarov, the reform will reduce and eventually
eliminate the role of deputy prime ministers, who currently share
responsibility for running some ministries with ordinary ministers. Duma
Speaker Gennadii Seleznev has said the new law on the government requires
Yeltsin to eliminate the post of first deputy prime ministers (see "RFE/RL
Newsline," 13 January 1998). LB

RUSSIA, SYRIA MEND FENCES.  A Russian government delegation that included
Justice Minister Sergei Stepashin and Atomic Energy Minister Viktor
Mikhailov arrived  in Damascus on 20 February for talks aimed at reviving
the two countries' "strategic partnership"  and to attend the first session
of the Russian-Syrian technical and economic committee, created five years
ago, Russian media reported. According to "Russkii telegraf" of 21
February, Stepashin had previously disclosed that military-technical
cooperation, including the sale to Syria of Russian arms, would be a key
topic at the talks. Syria owes Russia some $10 billion for arms purchases.
The next day, Stepashin and Mikhailov met with Syrian President Hafez
al-Assad, to whom they handed a letter from Russian President Boris Yeltsin
containing proposals for developing bilateral cooperation. On 23 February,
the two sides signed a series of cooperation agreements on nuclear power,
trade, and tourism. LF

DUMA RATIFIES AGREEMENTS WITH KAZAKHSTAN. The State Duma on 20 February
ratified agreements between Moscow and Aqmola on Russia's use of firing and
test ranges on Kazakh territory, ITAR-TASS reported. Russia is to pay
$27.5 million annually for the use of those sites, but $24.3 million is
take the form of military hardware deliveries and the training of Kazakh
servicemen. BP

ZYUGANOV PLEASED WITH DEVELOPMENTS IN IRAQ. Communist Party leader Gennadii
Zyuganov told journalists on 23 February that his party is satisfied with
the results of UN Secretary-General Kofi Annan's recent talks with Iraqi
leaders, Russian news agencies reported. He especially praised the Russian
Foreign Ministry and Foreign Minister Yevgenii Primakov for their work in
settling the crisis in Iraq. Zyuganov added that all of the Duma factions,
except for Yabloko, "worked actively" for a peaceful settlement to the
problem. Grigorii Yavlinskii and other Yabloko members criticized a
resolution adopted by the Duma on Iraq and charged that sending a plane to
Baghdad filled with humanitarian aid and Duma deputies was a political
stunt rather than an attempt to resolve the crisis (see "RFE/RL Newsline,"
5 and 9 February 1998). LB

OFFICIALS MARK HOLIDAY WITH PROMISES TO MILITARY. Yeltsin announced on 23
February, Defenders of the Fatherland Day, that he is "much more optimistic
about military reform" than he was a year ago, Interfax reported. The same
day, Prime Minister Chernomyrdin promised that the wages of military
personnel will be doubled in 1998 and that all servicemen will have
apartments before the year 2000. During a 23 February meeting with Defense
Minister Igor Sergeev, Yeltsin said a Japanese loan of $1.5 billion will be
invested in a government program to build housing for military personnel
who have left or will leave the armed forces because of downsizing,
ITAR-TASS reported. According to "Kommersant-Daily" on 24 February, the
government currently owes officers an average of 10 million old rubles
($1,600) each. LB

GOVERNMENT CREATES COMMISSION ON DEFENSE INDUSTRY. Chernomyrdin has signed
a resolution appointing First Deputy Prime Minister Chubais to chair a new
government commission for the financial recovery of the defense industry,
ITAR-TASS reported on 23 February. Deputy Prime Minister and Economics
Minister Yakov Urinson will be that commission's deputy chairman. Chubais
announced on 20 February that the government plans to revise its procedure
for concluding contracts with defense enterprises and to reduce the number
of such enterprises receiving state orders from 1,700 to 600, Interfax
reported (see "RFE/RL Newsline," 16 February 1998). LB

MILITARY PROBES EXPLOSIONS AT BASES. In preliminary findings, military
investigators say fires and explosions on 21 February at two bases--one in
the Saratov Oblast city of Engels, the other outside Volgograd--were the
result of negligence, ITAR-TASS reported. At the Engels base, boxes
containing 23-millimeter cartridges caught fire, while at the ammunition
depot near Volgograd, boxes with 125-millimeter shells for T-70 tanks went
up in flames.  No deaths or injuries have been reported, and officials say
the two fires are not related. Investigators, however, are continuing their
probe. They say arson may have been a cause and that terrorism has not been
ruled out. BP

NDR LEADER EXPLAINS POSITION ON BUDGET. Aleksandr Shokhin, the leader of
the pro-Russian Our Home Is Russia (NDR) faction, confirmed on 23 February
that his faction voted against the draft 1998 budget in the fourth reading
on 20 February, RFE/RL's Moscow bureau reported. The Duma fell 35 votes
short of approving the document, and the support of the NDR faction would
have made up the shortfall. Shokhin explained that the Duma was voting on
an unamended version of the budget, having rejected a government proposal
to tie certain expenditures to the receipt of revenues. Duma First Deputy
Speaker Vladimir Ryzhkov of NDR argued that passing an unchanged version of
the budget would merely lead to a presidential veto. Shokhin again
advocated giving the government more leeway on reducing expenditures in the
case of revenue shortfalls. LB

ZYUGANOV BLASTS GOVERNMENT STANCE ON BUDGET. Communist Party leader
Zyuganov charged that the government prefers to work without a budget so
that it "does not have to answer for anything," Russian news agencies
reported on 23 February.  Zyuganov's statements echo recent accusations by
Duma Speaker Gennadii Seleznev (see "RFE/RL Newsline," 23 February 1998).
Meanwhile, Yeltsin told journalists on 23 February that he will "insist on"
the adoption of a realistic budget for 1998. He asked rhetorically why the
authorities should "deceive the people" by allocating money on paper that
will not be paid out. LB

ZADORNOV CONFIDENT ON CREDIT RATING. Finance Minister Mikhail Zadornov says
he is confident that Moody's and Standard and Poor's will not lower
Russia's sovereign debt rating after representatives of the agencies visit
Moscow in late February, ITAR-TASS reported on 23 February. Speaking in
London following a conference on employment and economic development in
Russia and the G-7 countries, Zadornov said there are "absolutely no
reasons" to lower Russia's credit rating. In recent months, both rating
agencies have revised their outlooks for Russia from "stable" to
"negative." But Zadornov said the government has figures with which to
persuade the agencies. He cited new data showing that GDP in January 1998
was up 1.5 percent over the same month in 1997 and that tax and customs
revenues have increased while yields on treasury bills have fallen. LB

NEWSPAPER WARNS OF RATING AGENCIES' INFLUENCE. "Nezavisimaya gazeta" argued
on 20 February that rating agencies such as Moody's and Standard and Poor's
are "ready to replace the IMF" as the main Western monitor of the Russian
economy. The newspaper noted that a downgrade by those agencies could
increase the cost of borrowing by millions of dollars, both for governments
and for commercial banks (which cannot have a higher credit rating than
that of the country in which they are based). It suggested that the
agencies act primarily in the interests of Western and especially U.S.
creditors. Since those creditors suffered huge financial losses recently on
Southeast Asian markets, they may be looking to charge higher interest
rates to other borrowers--hence the drive to reduce Russia's credit rating,
"Nezavisimaya gazeta" argued. The newspaper called on the Central Bank to
stop trading in treasury bills, which, it said, has contributed to
instability on Russian markets. LB

COURT UPHOLDS APPEAL BY ENVIRONMENTALISTS. In the first case of its kind,
the Supreme Court has ruled in favor of an appeal by environmental groups
against government instructions allowing the development of some federally
owned forested areas, RFE/RL's Moscow bureau reported on 20 February. Last
April, the environmentalists appealed against 12 government regulations
that allowed some 32,000 hectares of forest to be cleared for other uses,
such as the construction of homes. They said the government had failed to
comply with laws requiring that ecological surveys be conducted before
forests can be converted to other land uses. Vera Mishenka, the president
of the Eko-Yuris institute, said the court's ruling affects only a few
regulations that were based on old forestry laws, not similar government
instructions based on the new forestry code. She added that it will be a
challenge to force the government and the Federal Forestry Service to
implement the court ruling. LB

YELTSIN MEETS WITH INGUSH, NORTH OSSETIAN  PRESIDENTS. Yeltsin held talks
in Moscow on 23 February with Ruslan Aushev and Aleksandr Dzasokhov and
congratulated the latter on his election as president last month, Russian
media reported. The Russian president expressed concern that agreements
between Russia and Chechnya are ineffective and reiterated his intention to
travel to Chechnya. Dzasokhov told journalists later that both he and
Aushev believe the heads of all North Caucasus republics and regions should
travel to Grozny before Yeltsin does. Dzasokhov proposed tax breaks of up
to seven years for the North Caucasus republics to enable them to put their
infrastructure in order.  He stressed that the 23 February meeting
demonstrated Russia's "serious interests" in the North Caucasus. And he
proposed greater coordination between regional leaders, specifically in the
drafting of a new nationalities policy for the region. LF

TATAR PUBLIC CENTER LEADER OUTLINES TACTICS. Fandas Safiullin told
journalists in Kazan on 19 February that his party will shift the focus of
its activities "from the streets to the State Council," RFE/RL's Kazan
bureau reported. Safiullin, who is a council member, said the center will
continue to agitate for Tatarstan's "true independence" and for
"establishing true democracy." On his election as chairman last month,
Safiullin had argued that the center must change its policies in order to
regain public support, which had been dwindling. But outgoing chairman Zaki
Zainullin said his replacement by Safiullin was intended to make the center
an instrument for implementing the policies of President Mintimer Shaimiev.
The Tatar Public Center was founded in 1989 and has consistently advocated
Tatarstan's independence from the Russian Federation. Shaimiev, for his
part, has taken a more accommodating approach toward relations with Moscow.
LF

TRANSCAUCASUS AND CENTRAL ASIA

ZVIADISTS RULE OUT RELEASING MORE HOSTAGES. Gocha Esebua, who heads the
band of some 20 supporters of former Georgian President Zviad Gamsakhurdia
holding three UNOMIG observers and several Georgians hostage in the west
Georgian village of Djikhaskari, announced on 23 February that he will not
release any more hostages. Esebua accused the Georgian authorities of
reneging on a 21 February agreement whereby one Uruguayan UN observer was
released in return for the promise that  CIS peacekeeping troops deployed
along the border between Abkhazia and the rest of Georgia would be replaced
by a UN force.  But Georgian Security Minister Jemal Gakhokidze claimed
that Esebua agreed to release the first hostage unconditionally, according
to Caucasus Press.  Also on 23 February, Czech presidential spokesman
Jaroslav Kulisek rejected Esebua's proposal that President Vaclav Havel
should mediate talks between the Georgian government and Gamsakhurdia's
supporters. LF

SHEVARDNADZE SETS CONDITIONS FOR TALKS. Speaking on Georgian radio on 23
February, President Shevardnadze said that negotiations on meeting the
kidnappers' demands can begin only after a decision has been taken on which
group of Gamsakhurdia's supporters is to participate and only after the
unconditional release of the hostages.  But Shevardnadze subsequently
ordered Georgian Ambassador to Moscow Vazha Lortkipanidze to meet with Nemo
Burchuladze to discuss the hostage-takers' demands, Caucasus Press
reported. Burchuladze was deputy chairman of the Georgian parliament under
Gamsakhurdia from 1990-1991 and has lived in Moscow since Gamsakuhurdia's
ouster in January, 1992. But on 24 February,  Burchuladze sent a
representative to meet with Lortkipanidze in his place, RFE/RL's Tbilisi
bureau reported.  LF

ARMENIAN OFFICIAL DETAILS  ELECTION SAFEGUARDS. Speaking at a press
conference in Yerevan on 23 February, Armenian Central Electoral Commission
chairman Khachatur Bezirjian listed measures intended to minimize the
possibility of fraud at the 16 March presidential elections and  RFE/RL's
Yerevan bureau reported.  Bezirjian said voting protocols from individual
precincts will be faxed to the commission immediately after the vote count
is finished and will be made public before the votes are tabulated and
added together by higher-level commissions. Bezirjian also announced that
the commission will introduce transparent glass ballot boxes to ensure
every voter casts only one ballot. He said the government has earmarked 180
million drams ($360,000) for organizing the ballot.  Fourteen candidates
have announced their intention of running. LF

NO OBSTACLES TO KOCHARYAN'S CANDIDACY? Bezirjian also said he believes
Prime Minister and acting President Robert Kocharyan fulfills the electoral
law requirement that presidential candidates must be citizens of the
Republic of Armenia and have lived there for ten years. He added, however,
that a final decision on this issue will be taken by the entire Central
Electoral Commission. Bezirjian pointed out that Kocharyan is treated as an
Armenian citizen when given visas by foreign embassies.  Also on 23
February, presidential candidate David Shahnazarian argued on Armenian
Television that Kocharyan's candidacy is unconstitutional. But in an
interview in "Aravot" the next day, Kocharyan pointed out that  "the
Republic of Armenia has not existed for 10 years. Besides, I was a deputy
to the Armenian parliament for seven years. I have served as Armenian prime
minister for one year. If I'm not eligible, then who is?" LF

TURKMEN PRESIDENT IN BRUSSELS. Saparmurat Niyazov signed a memorandum of
understanding with the Anglo-Dutch company Shell during his visit to
Brussels on 23 February, Interfax reported. Late last year, Shell was named
to head a consortium that will build and maintain a pipeline from
Turkmenistan to Turkey. Niyazov also met with NATO Secretary-General Javier
Solana and Belgian Prime Minister Jean-Luc Dehaene. Also on 23 February in
the Turkmen capital, Ashgabat, representatives of the Economic Cooperation
Organization began discussing oil and gas pipeline routes. All 10  member
nations sent representatives, except Azerbaijan. BP

REGIONAL AFFAIRS

LUKASHENKA PRAISES PRIMORSKII GOVERNOR. Belarusian President Alyaksandr
Lukashenka highly praised Primorskii Krai Governor Yevgenii Nazdratenko
during an visit to Vladivostok on the way home from the Olympics in Nagano,
Japan, RFE/RL's correspondent in Vladivostok reported on 23 February.
Lukashenka said he and Nazdratenko agree on privatization and border
policy. (The governor has long been an opponent of First Deputy Prime
Minister Chubais and has accused the government of planning to give up
territory in Primore to China.) Lukashenka hinted that the Russian
government's "young reformers" are secret opponents of integration with
Belarus. But he cited an economic cooperation agreement signed in
Vladivostok as evidence that Russian regional leaders are welcoming closer
ties with Minsk. He also said he hopes Ukrainian President Leonid Kuchma
loses a presidential election scheduled for 1999, because, he commented,
Kuchma opposes integration with Russia and Belarus. LB

UKRAINE SAYS TERRITORIAL DISPUTE WITH RUSSIA 'NON-EXISTENT.' The Ukrainian
Foreign Ministry said on 23 February that a territorial dispute between
Moscow and Kyiv "never existed and cannot exist," ITAR-TASS reported on 23
February. The statement came in response to Moscow Mayor Yuri Luzhkov's
recent claims to Crimea and its port city of Sevastopol (see "RFE/RL
Newsline," 23 February 1998). The Foreign Ministry said that, as in Russia,
"serious politicians in Ukraine" realize that good relations between  Kyiv
and Moscow are based on "mutual respect, sovereignty, and territorial
integrity." The Ukrainian parliament has approved a bilateral treaty with
Russia that guarantees current borders between the two countries. PB

BALTIC SEA REGIONS SIGN ACCORD IN POLAND. Regions from six countries
bordering the Baltic Sea signed a cooperation agreement aimed at creating a
"Baltic Euro-region," AFP reported on 22 February. "The Baltic Sea is
becoming a sea of the European Union," Polish Foreign Minister Bronislaw
Geremek said at the signing in the northern city Polish town of Malbork.
Representatives from the Danish island Bornholm, Latvia's Liepaja and
Lithuania's Klaipeda regions, the Russian exclave Kaliningrad Oblast, and
the Swedish provinces Kalmar, Kronenburg, and Blekinge, and Polish
provinces Elblag, Gdansk, Olsztyn, and Slupsk signed the accord, which
promotes cooperation in economics, agriculture, transportation,
environmental protection, and education. PB

END NOTE

GEORGIA'S FAST-GROWING ECONOMY

by Michael Wyzan

        In 1997, the Georgian economy continued to dig itself out of the
hole that resulted from the political turmoil and poor economic
policy-making during the early years of independence. The decline in gross
domestic product (GDP) from 1991-1994 was nearly 73 percent, the largest
collapse in the former USSR.
        Last year's economic performance was especially impressive in view
of continuing domestic tension surrounding the failure to resolve the
stalemate over the fate of Abkhazia and ongoing problems in political and
economic relations with Russia. Since last fall, Moscow has refused entry
to hundreds of trucks transporting Turkish-produced alcohol to Russia via
Georgia.
        For the second consecutive year, Georgia was the fastest-growing
economy within the CIS and  second only to Bosnia among transition
economies. GDP grew by 11.3 percent in 1997, following an 11 percent
increase the previous year. Despite an acceleration late in 1997, consumer
price inflation on a December-to-December basis was 7.9 percent, compared
with 13.8 percent the previous year.
        The exchange rate against the dollar remains one of the most stable
among transition countries, having moved only to 1.32 from 1.25 at the
lari's introduction in October 1995. Wages continue to grow. The average
monthly wage in the third quarter of 1997 was some $50, twice the amount a
year earlier.
        Progress was made in several areas of economic policy. On the
fiscal front, a new tax code was introduced, the Ministry of Finance was
reorganized, the first treasury bill auctions were held, and the 1998
budget was introduced in the parliament far earlier than in previous years
and with more realistic revenue projections. Those developments followed on
the heels of the appointment as finance minister of  Mikhail Chkuaseli,
who, at age 26, is undoubtedly the youngest person in the world to hold
that position. (His Armenian counterpart, Armen Darbinian is 32.)
        Headway was also made in strengthening the banking system, with
three former state banks being certified in accordance with international
standards. Privatization, though seemingly stalled in the first half of
1997, advanced in July, when all shares in 266 enterprises were sold at
"zero cash auctions." At those auctions, bidders were offered shares in
companies whose stock had remained unsold at two previous cash auctions
There was no reserve price, and shares were distributed in proportion to
the amounts offered by bidders (instead of the usual practice of seeing how
many bids are made for shares at a fixed price).
        In addition, foreign investors bought controlling stakes in three
promising enterprises: a brewery, a bottler, and a producer of sparking
wines. And in August, President Eduard Shevardnadze rescinded a May 1996
decree that had suspended the privatization of 51 companies deemed of
strategic importance.
        However, a closer look at macroeconomic and foreign sector
performance shows that Georgia still has a long way to go before it is on
its feet economically. While the budget deficit  has fallen from 4.4
percent of GDP in 1996 to a projected 2 percent this year, revenue
collection remains among the worst in the world. From January to September
1997, revenue was only 8 percent of GDP. The authorities have managed to
keep deficits small by limiting expenditures and by running arrears,
particularly on education in rural areas.
        Moreover, given that the lari has weakened only slightly and
inflation continues at a faster rate than in Georgia's main Western
partners, there is increasing concern about rising foreign sector
imbalances. Unfortunately, data on exports and imports are unreliable,
since a large percentage of trade is unregistered owing to problems with
the customs service, especially in Adzharia, on the border with Turkey.
        Available data suggest a large trade imbalance: in January, Economy
Minister Vladimir Papava cited a figure of $600 million for all of 1997.
Meanwhile, the IMF and World Bank, along with the EU and the U.S., continue
to help finance Georgia's current account deficit. That level of support
will not last indefinitely, making such large imbalances unsustainable in
the long run.
        Another worrisome indicator is a foreign debt totaling $1.485
billion as of 1 October 1997. Much of that debt is owed to international
bodies: $220 million to the IMF, $250 million to the World Bank, and $125
million to the EU. But Turkmenistan is Georgia's largest creditor, with
Tbilisi having accumulated about $460 million in outstanding debts for
natural gas shipments. Ashgabat suspended such shipments in March 1997,
which led to a worsening of the energy situation in Georgia. And the two
sides failed to agree on debt rescheduling during Shevardnadze's visit to
Turkmenistan in December.
        Registered cumulative foreign investment as of 1 October was only
$105.3 million, the leading investors being Israel, Ireland, the U.S.,
South Korea, and Germany. Many factors constrain business development (both
foreign and domestic) and drive businesses into the shadow economy. Those
factors include irregular energy supplies, poor transportation links and
telecommunications, problems with the banking system, and an often corrupt
and inefficient bureaucracy.

The author is an economist living in Austria.


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