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RFE/RL NEWSLINE

RFE/RL NEWSLINE Vol 2, No. 42 , Part II, 3 March 1998


___________________________________________________________
RFE/RL NEWSLINE Vol 2, No. 42 , Part II, 3 March 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 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:
http://www.rferl.org/newsline

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RFE/RL CAUCASUS REPORT: A WEEKLY REVIEW OF POLITICAL DEVELOPMENTS IN THE
NORTH CAUCASUS AND TRANSCAUCASIA FROM RADIO FREE EUROPE/RADIO LIBERTY
This new email weekly covers Armenia, Azerbaijan, Georgia and Russia's
North Caucasus. To subscribe, send an email message to
caucasus-report@list.rferl.org with the word "subscribe" in the subject
line or body of the message. The first issue (March 3, 1998) and all future
issues will be online at the RFE/RL Web site.
http://www.rferl.org/caucasus-report/

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Headlines, Part II

* EU CRITICIZES BELARUS OVER CONVICTED YOUTHS

* NEARLY 300 KOSOVARS INJURED IN PROTEST

* SERBIA SAYS KOSOVO SITUATION "UNDER CONTROL"

* End Note: BULGARIAN ECONOMY FROZEN EIGHT MONTHS AFTER START OF CURRENCY BOARD

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EAST-CENTRAL EUROPE

EU CRITICIZES BELARUS OVER CONVICTED YOUTHS. The EU has sharply criticized
the Belarusian government for its treatment of two youths convicted last
week of vandalism, an RFE/RL correspondent in London reported on 2 March. A
statement issued by Britain, the current holder of the EU Presidency, said
the union considers the six-month pre-trial detention, the heavy police
guard during the trial, and the severe nature of their sentences to be
disproportionate to the crime committed. It urged Belarusian officials to
show clemency to the two youths, one of whom was sentenced to 18 months'
hard labor (see "RFE/RL Newsline," 25 February 1998). The statement said
that Eastern European countries associated with the EU "align themselves"
with the declaration. PB

ODESSA MAYOR BLAMES OPPONENTS FOR VIOLENCE. Eduard Hurvits said on 2 March
that the political opposition was responsible for the recent spate of
violence in Odessa, which he described as an effort to force him out.
Hurvits added that police have links with criminal groups that want him
ousted. He noted that they have not even investigated the disappearance of
city official Ihor Svoboda, Hurvits' friend, who was allegedly kidnapped
last week and is still missing. Hurvits is currently engaged in a power
struggle with regional administration chairman Ruslan Bodelan, who has
filed mismanagement charges against Hurvits and called for him to be
replaced. PB

UKRAINIAN DEPUTIES CRITICIZE ACCORD WITH RUSSIA. A group of Ukrainian
parliamentary deputies on 2 March criticized the 10-year economic
cooperation agreement signed by Ukrainian and Russian Presidents Leonid
Kuchma and Boris Yeltsin in Moscow last week. Deputy Serhiy Teryokhin said
such an agreement must be ratified by the Ukrainian parliament. He added
that the country would lose billions of dollars as a result of the accord,
which included tax exemptions and lower tariffs for Russian gas transiting
Ukraine. PB

ESTONIA AIMS FOR STABLE GDP GROWTH. Finance Minister Mart Opmann says his
government is aiming for  GDP growth of 5.5-6 percent over the next few
years, BNS and ETA reported on 2 March. Opmann, who was addressing a group
of Finnish financial leaders and businessmen, noted that the Finance
Ministry predicts inflation at 9.6 percent this year, down from 10.6
percent in 1997. He said that Tallinn would seek to boost exports in a bid
to deal with the foreign trade deficit. And he added that the parliament
will approve various austerity measures before the summer recess. JC

LATVIAN DEPUTIES BLOCK VOTE OF CONFIDENCE. Latvian deputies on 2 March
declined to hold a vote of confidence in the government, BNS and Reuters
reported. Prime Minister Guntars Krasts proposed the vote after  Latvia's
Way, the second largest coalition partner, had accused Krasts of seeking to
slow down privatization and failing to abide by the government coalition
agreement. Krasts was unable, however, to gather enough support to block a
procedural resolution preventing the confidence vote from taking place. The
premier told BNS that if the government is not able to show solidarity and
if parliamentary deputies interfere with its goals, "we will have to repeat
the vote of confidence or find more radical steps." JC

LITHUANIA INDICTS ANOTHER SUSPECTED WAR CRIMINAL. The Prosecutor-General's
Office has brought formal charges against Kazys Gimzauskas, who was deputy
chief of the Vilnius security police from 1941-1944 and is suspected of
involvement in genocide against Jews, BNS reported on 27 February.
Gimzauskas has denied the charges, claiming that he was a member of the
anti-Nazi underground. He told BNS that he will repeat his "statement of
innocence" under oath. The trial of Aleksandras Lileikis, who was
Gimzauskas's superior during the period 1941-1944, is due to begin soon. JC

EU OFFICIAL SAYS POLAND LEADS AMONG EASTERN ASPIRANTS. Juergen Trumpf, the
secretary-general of the EU Council of Foreign Ministers, said on 2 March
that Poland is the leader among former Warsaw Bloc nations seeking to enter
the EU. Trumpf, who was in Warsaw for discussions ahead of the 31 March EU
membership talks, met with Polish Prime Minister Jerzy Buzek. Buzek said
afterwards that it would take Poland about 20 months to adjust legislation
to meet EU standards, adding that the most difficult changes will be in the
agricultural sector. PB

CZECH POLICE DETAIN RUSSIAN CO-OWNER OF WEAPONS EXPORT FIRM. The Russian
co-owner of the Kamo company, which exported decommissioned Czech military
equipment to North Korea, has been detained, Nova Television reported on 27
February. Vojtech Filip, who is a lawyer and also a parliamentary deputy
representing the Communist Party of Bohemia and Moravia, is reported to
have helped the company obtain a license, which, however, was not valid for
the export of decommissioned material. Filip stressed that the role he
played was in his capacity as a lawyer and had "nothing to do with the
Communist Party," CTK reported. MS

PRAGUE TO END 'SPECIAL RELATIONSHIP' WITH SLOVAKIA. Czech Deputy Foreign
Minister Pavel Telicka on 2 March told journalists that the Czech
Republic's "special relationship" with Slovakia is likely to end once
Prague joins the EU, CTK reported. Telicka, who is Czech chief negotiator
in the accession talks with the EU, said Prague would like Slovakia to be
included on the list of countries involved in fast-track accession talks.
But if that does not happen, he stressed, the Czech Republic will have to
act in line with EU directives on the security of borders of member
countries. The Czech Republic and Slovakia established a customs union
following the breakup of the former Czechoslovakia.  MS

KOVAC STEPS DOWN AS SLOVAK PRESIDENT. Michal Kovac, speaking at a ceremony
marking the end of his term as Slovak president, said it would be "in the
interest of Slovakia if intensive negotiations and the good will of all
parties involved led to [the] parliament electing a new Slovak president
within a short time," Reuters and AFP reported on 2 March. Kovac also
criticized  the "lack of cooperation" demonstrated by the government headed
by Vladimir Meciar. Some presidential powers have passed to Meciar in the
absence of an elected successor to Kovac. Some 5,000 demonstrators staged a
protest outside the presidential palace, shouting "Meciar-- dictator." MS

SLOVAK DAILY REVEALS FINANCING OF MECIAR'S 1994 CAMPAIGN. "Sme" on 2 March
reported that the 1994 election campaign of Meciar's Movement for a
Democratic Slovakia (HZDS) was heavily financed by "moguls" who had bought
major Slovak companies during the privatization process. "Sme" singled out
Alexander Rezes, director-general of the Vychodoslovenske Zelenziarne steel
giant, and Vladimir Poor from Trnava, western Slovakia, who bought heavily
into the oil storage and refinery branches. MS

HUNGARY TO FURTHER EXAMINE DAM PROJECT. Hungarian Foreign Minister Laszlo
Kovacs told  the parliament on 2 March that the cabinet will order further
examinations of the Slovak-Hungarian Danube hydropower project before it
approves the framework agreement signed in Bratislava last week (see
"RFE/RL Newsline," 2 March 1998). Since those examinations will take
months, it is unlikely that any agreements related to the project will be
signed with Slovakia before the May elections, Kovacs said. MS

HUNGARIAN OPPOSITION PARTY TO SUPPORT FAR-RIGHTISTS. The Christian
Democratic People's Party (KDNP) on 1 March announced that in some
electoral districts, it will support the candidates of the far-right
Hungarian Justice and Life Party, headed by Istvan Csurka. In one district,
the KDNP will back a candidate of the National Association for Hungary.
That party was set up last year by Agnes Nagy Maczo, who is well known for
her anti-Semitic views and who was expelled from the Smallholders' Party.
MSZ


SOUTHEASTERN EUROPE

NEARLY 300 KOSOVARS INJURED IN PROTEST. A violent police crackdown on a
protest demonstration by Kosovars in Pristina on 2 March left some 289
ethnic Albanians injured, local Albanian-language dailies reported. Major
international television broadcasters carried footage that showed police
indiscriminately beating even elderly demonstrators. The footage also
indicated that some young Albanians threw stones at police. PM

SERBIA SAYS KOSOVO SITUATION "UNDER CONTROL." Federal Interior Minister
Pavle Bulatovic said in the parliament on 2 March that the situation in
Kosovo is under control and that there is no need for military intervention
or to declare a state of emergency. In Pristina, an Interior Ministry
spokesman said the authorities will not  permit what he called
"demonstrations that support terrorism." And in Belgrade, representatives
of the Helsinki Committee for Human Rights strongly condemned "brutal
police repression against the Albanians." The spokesmen added that
repressive measures by the police only serve to "reinforce the existing
state-sanctioned apartheid" dividing Serbs and Albanians and to give the
Albanians no choice except to use violence themselves. PM

KOSOVARS WARN OF "TERRIBLE WAR."  Xhafer Shatri, the information minister
of the Kosovo government-in-exile,  said in Geneva on 2 March  that a
"terrible war" will break out in Kosovo and affect surrounding countries if
the international community does not intervene quickly in the wake of
recent violence. In Pristina, shadow state President Ibrahim Rugova
appealed to the international community--in particular to the U.S. and the
EU--to put diplomatic pressure on Belgrade to "end violence in Kosovo." The
steering committee of the Democratic League of Kosovo (LDK), the leading
Kosovar political party, also appealed to the international community to
help stop what the LDK called the dangerous escalation of violence. LDK
representatives conveyed their views directly to U.S. and U.K. diplomats in
Belgrade, an RFE/RL correspondent reported from the Serbian capital. PM

U.S. APPEALS TO SERBIA OVER KOSOVO. A State Department spokesman said in
Washington on 2 March that the U.S. is "appalled" by the police violence in
Kosovo and appealed to the Serbian authorities to address the Albanians'
concerns. The spokesman also urged both sides to engage in an
"unconditional dialogue." He warned, however, that the U.S. may reconsider
its February decision to lift some long-standing commercial and diplomatic
restrictions on Serbia "in light of Serbian actions in Kosovo over the last
three days." He added that Washington is "considering further actions that
might increase Belgrade's isolation." PM

EU CONDEMNS VIOLENCE... The British Foreign Office issued a statement in
the name of the EU on 2 March saying that "the EU unreservedly condemns the
violent repression of non-violent expressions of political views, including
peaceful demonstrations as well as the use of violence and terrorism to
achieve political goals. It regrets that police action led directly to
civilian casualties." PM

...AS DOES RUSSIA. The Foreign Ministry issued a statement in Moscow on 2
March noting that Russia "has unequivocally denounced terrorist acts and
called for refraining from using force," Interfax reported. It urged the
Yugoslav authorities to begin a dialogue with Albanian representatives.
"The Kosovo problem should be settled  on  the  basis  of the territorial
integrity of the Federal Republic of Yugoslavia, and of observing the
rights of  ethnic Albanians and other nationalities in accordance with
OSCE standards, the Helsinki principles, and  the UN Charter," the
statement said. PM

MACEDONIA CALLS FOR ACTION ON KOSOVO. Macedonian parliamentary speaker Tito
Petkovski said in Vienna on 2 March that "when the [Kosovo] problem turns
into an armed conflict, it will spread beyond Kosovo's boundaries. Without
rapid [diplomatic] intervention, the stability of the whole region is
threatened, including Macedonia," he added. Meanwhile in Skopje, government
spokesman Zoran Ivanov said that the Macedonian authorities are "following
the developments in Kosovo with great concern." He said that Macedonia
expects the "problem will be solved peacefully, through a dialogue between
the authorities in Belgrade and the political forces in Pristina," BETA
news agency reported. Ivanov denied unspecified media reports that the
border between Macedonia and Yugoslavia is closed. PM

SLOVENIA LAUNCHES KOSOVO APPEAL. The Slovenian Foreign Ministry said in a
statement in Ljubljana on 2 March that Slovenia "is extremely concerned
about the increasing violence and new victims in Kosovo.... The killings
should be stopped in order to start a tolerant political dialogue which
should replace bloodshed and violence.... Slovenia supports an active role
of the international community in settling the situation.... The
international community should insist that human rights and liberties are
respected." Slovenia currently holds a seat on the UN Security Council. PM

ALBANIAN PARLIAMENT WANTS NATO PRESENCE. Albanian lawmakers on 2 March
approved a statement saying it is ready to "cooperate in every way" if NATO
or the UN request that peacekeeping troops be stationed in the western
Balkan region, "Koha Jone" reported. At an emergency parliamentary session,
representatives of the Democratic Party proposed holding an all-Albanian
national roundtable to formulate a common policy on Kosovo. Elsewhere,
Prime Minister Fatos Nano urged the international community to become
involved in the dispute, adding that the "developments in Drenica show that
efforts to solve the Kosovo problems cannot be delayed any longer." Nano
also telephoned with his Greek counterpart, Kostas Simitis, to urge him to
use his good relations with Belgrade to help reach a settlement. FS/PM

ALBANIAN OPPOSITION CALLS FOR KOSOVO RESTRAINT. Democratic Party leader
Sali Berisha issued a statement in Tirana on 2 March appealing to the U.S.
and EU to help prevent "any further aggravation of the conflict, which
could have unforeseen consequences for Kosovo and the southern Balkans."
The former president also called on "the political leadership and
individual Albanians in Kosovo to restrain themselves so as not to
aggravate the conflict with Belgrade's police regime." Berisha was
generally known as a supporter of the Kosovars during his presidency from
1992-1997. PM

ROMANIAN PRESIDENT HINTS CIORBEA MAY BE SACRIFICED. Emil Constantinescu
said after a 2 March meeting with the National Peasant Party Christian
Democratic (PNTCD) leadership that in order to resolve the ongoing
political crisis, the PNTCD "must ignore party interests." Observers
believe this is a hint to the PNTCD that Prime Minister Victor Ciorbea may
have to go if cooperation within the ruling coalition is to be restored.
Constantinescu pointed out that the PNTCD is the largest political force
within the coalition and that its responsibility toward solving the crisis
is therefore "all the greater." He also said Romania is at present
experiencing five crises: economic, social, political, moral, and
communications-related. The last of those crises, he stressed, is
particularly affecting the work of the cabinet. MS

ANOTHER COALITION PARTY DISTANCES ITSELF FROM CABINET. Romanian Alternative
Party (PAR) chairman Varujan Vosganian on 2 March said the cabinet  has
lost the authority needed to relaunch economic reform. He  accused Ciorbea
of delaying the process of drafting the budget and said the premier is
suffering from a "centralist perception of the national economy." The
previous day, a prominent leader of the National Liberal Party hinted that
he backs the Democratic Party's demand that Ciorbea resign (see "RFE/RL
Newsline,"  2 March 1998). MS

MOLDOVAN PRESIDENT ON UPCOMING ELECTIONS. In his weekly address to the
nation, Petru Lucinschi on 2 March said that regardless of the outcome of
the parliamentary elections later this month, Moldova will have no choice
but to pursue reforms. But he warned that the elections could result in the
"slowing down" of the reform process and may even "make us lose another
five to seven years." Lucinschi said the success of reforms depended to a
great extent on cooperation between himself and the legislature. He
explained that, for this reason, he  was calling on the electorate to back
political parties that have already demonstrated their willingness to
cooperate with him, Infotag and BASA-press reported. MS

RUSSIA WANTS IMPROVED TIES WITH BULGARIA. Igor Stroev, chairman of the
Federation Council, said in Sofia on 2 March that Russia wants to improve
ties with Bulgaria, which are strained because of ongoing disputes over gas
supplies, ITAR-TASS reported. Stroev is heading  a Russian delegation that
is taking part in the celebrations to mark 120 years since the
Russo-Bulgarian victory against Turkey. MS

EUROLEFT PARTY FORMED IN BULGARIA. The Euroleft alliance has set up a new
party, called Bulgarian Euroleft, whose aim is to unite Bulgaria's leftist
formations and to establish a "modern, European social democracy" in the
country, RFE/RL's Sofia bureau reported on 1 March. Euroleft was formed by
defectors from the Socialist Party and  won 14 seats in the April 1997
elections. Its leader, Alexander Tomov, will also head the new party. MS

BULGARIAN ECONOMY FROZEN EIGHT MONTHS AFTER START OF CURRENCY BOARD

by Michael Wyzan

        A deep economic crisis began in Bulgaria in May 1996 and reached
its apogee when the consumer price index (CPI) rose 242.7 percent in
February 1997 alone. The lev fell from 70.4 to the dollar at the end of
1995 to 2,045.5 to the dollar just 14 months later, as the national bank's
foreign reserves fell from almost $1.5 billion in June 1995 to roughly a
quarter of that in January 1997. The average monthly wage nose-dived from
over $127 in December 1995 to under $25 in February 1997.
        Bulgaria's crisis reflected both poor macroeconomic policy and
severe structural problems, especially the failure to privatize enterprises
and banks or even to change the way they operated. Banks made uncollectable
loans to enterprises; when the banks in turn got into trouble, the national
bank frequently bailed them out through refinancing (i.e., lending) or
programs to replace their bad debt with government bonds. Interest on those
bonds became a burden on the budget, especially in 1996, when the deficit
hit 11.5 percent of gross domestic product (GDP). The crisis and its
aftermath caused a shakeout among large enterprises and banks. In the end,
14 of 27 banks failed.
        The government of Prime Minister Ivan Kostov, elected in April
1997, introduced a currency board on 1 July. Under such a board, the
exchange rate against a major currency is fixed and backed 100 percent (or
more) by foreign reserves. The only increases allowed in the domestic money
supply result from converting foreign currency into domestic money.
        The economy has stabilized greatly since the currency board's
introduction. CPI inflation has fallen to 0.5-2 percent monthly over the
last four months (it was 2.1 percent in January). That it has not fallen
further partly reflects the weakening of the German mark against the dollar
in July and August of 1997 and January 1998 and the liberalization of food
and energy prices. Average monthly wages reached almost $108 in December
1997, twice their dollar level a year earlier.
        Confidence has returned to the banks, with people converting their
money back into leva and redepositing it with them. The international
financial institutions have resumed lending to Bulgaria. During 1997 it
received $320 million from a loan awarded in April by the IMF, whose
Bulgarian mission chief said in February that performance is "better than
expected." Bulgaria also signed loan agreements with the World Bank ($100
million) and the EU ($250 million) last year. These factors contributed to
a rise in the national bank's foreign reserves to over $2 billion by the
end of 1997.
        For all the good news, the economy remains depressed, with GDP
declining by 7.4 percent in 1997. While many observers had predicted rising
unemployment this winter, that has not happened: the unemployment rate in
January was 14.2 percent, higher than in the autumn, but equal to its level
in July 1997.
        Banks are now flush with liquidity but seemingly unwilling to lend
to enterprises. The main use for banks' funds is buying government bonds.
With the budget deficit sharply reduced -- it was 3.6 percent of GDP last
year and is projected at 2 percent this year -- the government demands less
credit. Interest rates are extremely low. The national bank set its basic
annual interest rate recently at 5.53 percent, with inflation
(optimistically) projected at 16.5 percent. If banks resume lending to
enterprises, interest rates on such loans will be much higher. Loans of
that type are especially risky now that banks can no longer expect national
bank bailouts.
        One irony is that although the economic crisis began with a huge
drop in the lev, that event was not preceded by a large current account
deficit. Bulgarian had small trade and current account surpluses in 1996
and larger ones in 1997.
        However, the continuing inflation under a fixed exchange rate
regime will result in Bulgarian exports becoming more expensive and imports
cheaper, undoubtedly leading to rising trade and current account deficits.
That could occur as soon as this year, especially when the dollar wage
exceeds its historical high of $128.
        Then the question becomes whether financial inflows, especially
foreign direct investment, will flow in sufficiently to finance badly
needed imports, especially of investment goods. Although there has been
disappointment over the failure so far to receive higher credit ratings
from international rating agencies, several large privatization deals have
been signed involving foreign investors.
        One positive development is bank privatization. In July, the
government announced the sale of the United Bulgarian Bank (Bulgaria's
second largest) to several investors, including the European Bank for
Reconstruction and Development; and Japan's Nomura won a tender on 18
February to buy 78.3 percent of the Postal Bank.

The author is an economist living in Austria.


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