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RFE/RL NEWSLINE Vol. 2, No. 123 Part I, 29 June 1998
___________________________________________________________ RFE/RL NEWSLINE Vol. 2, No. 123 Part I, 29 June 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 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Headlines, Part I * YELTSIN SAYS THERE IS NO CRISIS * CENTRAL BANK HIKES REFINANCING RATE AGAIN * GEORGIAN PARLIAMENT SPEAKER WARNS OF "CATASTROPHE" End Note: OIL PRICE DECLINE FAILS TO DAMPEN AZERBAIJAN'S RECOVERY xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx RUSSIA YELTSIN SAYS THERE IS NO CRISIS. President Boris Yeltsin on 29 June cautioned against referring to Russia's current economic situation as a "crisis." According to Interfax, Yeltsin said before a meeting with Prime Minster Sergei Kirienko that "we have no crisis and that's why I do not describe the [government] program as anti-crisis, but rather refer to it as a stabilization program." Opening a cabinet session on 23 June, Yeltsin had argued that "the economic crisis has become so acute that there are social and political dangers." Explaining the president's decision to postpone a planned trip to Kazakhstan in July, spokesman Sergei Yastrzhembskii on 26 June told journalists that Yeltsin believes "four days is just too much time to spend elsewhere during a crisis," Interfax reported. Meanwhile, the Russian stock and bond markets fell further in the morning of 29 June after posting declines three days earlier. LB DUMA BUDGET COMMITTEE CONSIDERS TAX LAWS. The State Duma Budget Committee on 29 June began considering a package of draft laws on taxation that are part of the government's anti-crisis program, RFE/RL's Moscow bureau reported. Addressing the committee he chaired before joining the government last November, Finance Minister Mikhail Zadornov called on deputies to "immediately pass" the government's proposals, according to ITAR-TASS. The committee will make its recommendations before the Duma considers the package during a 1 July plenary session. Budget Committee Chairman Aleksandr Zhukov of the Russian Regions faction has already backed the government's program. He announced on 27 June that Russia must raise taxes now to avoid a sharp devaluation of the ruble. Deputy Prime Minister Boris Nemtsov on 28 June estimated that the government program, if approved in its entirety, would bring in an additional 102 billion rubles ($16.5 billion) in federal budget revenues. LB FINANCE MINISTER DENIES NEW SALES TAX WILL RAISE PRICES. Finance Minister Zadornov has denied that the planned introduction of a sales tax will increase prices for consumers. In an interview with Russian Public Television on 27 June, Zadornov argued that prices will remain "balanced" because the government is seeking to cut several other taxes, such as the profit tax, income tax, and employers' contributions to non-budgetary funds like the Pension Fund, ITAR-TASS reported. The government is seeking to raise taxes on consumption because they are easier to collect than taxes on income or profits. Another proposal submitted for consideration by the Duma would raise value-added tax to 20 percent on most staples currently taxed at a discounted rate. LB IMF STUDYING GOVERNMENT PLAN. Martin Gilman, the IMF's representative in Moscow, told Interfax on 27 June that a team of experts from the fund has begun studying the government's anti-crisis plan. IMF and Russian officials are negotiating a possible $10 billion to $15 billion loan to stabilize the financial markets, and the talks are expected to continue for weeks. Gilman on 28 June praised the Russian government's efforts to avoid the devaluation of the ruble, saying such a move would exacerbate Russia's budgetary problems, Interfax reported. Meanwhile, Prime Minister Kirienko told Russian Public Television on 26 June that the government will use the latest $670 million tranche from a four-year IMF loan to help pay debts to enterprises in the defense industry. The fund approved the release of that tranche on 25 June. LB CENTRAL BANK HIKES REFINANCING RATE AGAIN. At the end of another day of declines on Russian stock and bond markets, the Central Bank on 26 June announced plans to raise its annual refinancing and Lombard rates from 60 percent to 80 percent as of 29 June, Russian news agencies reported. The bank reduced those rates from 150 percent to 60 percent on 5 June, saying the worst of the crisis had passed. But the ruble remains under severe pressure. The Central Bank announced on 25 June that Russia's gold and hard-currency reserves dropped from $15.7 billion to $14.7 billion during the week of 12-19 June. Deputy Finance Minister Oleg Vyugin announced on 26 June that proceeds from the latest sale of Eurobonds have brought the gold and hard-currency reserves back up above the $16 billion level. LB BEREZOVSKII CALLS FOR 'CONSOLIDATION' TO SOLVE CRISIS. CIS Executive Secretary Boris Berezovskii says Russia can only solve its current crisis "through the consolidation of power," which he described as "consolidation of the broadest forces, including business." In a 28 June interview with the private network TV-6, which he partly finances, Berezovskii argued that the government "takes quite logical decisions but is not in a position to carry them out," Reuters reported. He argued that efforts to stabilize the political situation are "the best investment" for Russia. Berezovskii, one of Russia's most influential businessmen, is an advocate of forming a council of business leaders to advise the government (see "RFE/RL Newsline," 19 and 22 June 1998). LB NEMTSOV SAYS BUSINESSMEN WANT CONTROL OVER CABINET LINEUP. Deputy Prime Minister Nemtsov told fully state-owned Russian Television on 28 June that business leaders have not given the government "a single constructive proposal on the package of anti-crisis measures," Reuters reported. He argued that the main goal of business elites is to not to influence policy but to secure the dismissal of the government. He added that it would be a "catastrophe for Russia" if businessmen were given control over cabinet appointments. After Yeltsin fired Viktor Chernomyrdin's government in March, several influential businessmen sought to have Nemtsov excluded from the new cabinet. LB GAZPROM SHAREHOLDERS' MEETING IS VICTORY FOR CURRENT MANAGEMENT. Rem Vyakhirev, the chief executive of the gas monopoly Gazprom, has emerged strengthened from the company's annual shareholders' meeting on 26 June. Some Russian media speculated that the government would use the meeting to try to unseat Vyakhirev. However, Deputy Prime Minister Nemtsov told shareholders that the government has no plans to change the current management of the 40 percent state-owned company, Russian news agencies reported. Nemtsov also denied that the government will agree to break up the gas monopoly--a demand that some Russian media have attributed to the IMF. In addition, Nemtsov said the government has decided to reduce the number of enterprises to which Gazprom cannot cut off gas supplies. The shareholders chose State Property Minister Farit Gazizullin to replace Aleksandr Kazakov, former deputy head of the presidential administration, as chairman of Gazprom's board of directors. LB ANOTHER ARRESTED IN STATISTICS CORRUPTION SCANDAL. The Prosecutor-General's Office has arrested Vyacheslav Baranovskii, the head of the State Statistics Committee publishing center, on embezzlement charges, "Kommersant- Daily" reported on 27 June. He is the fourth high-ranking statistic official to be arrested this month (see "RFE/RL Newsline," 10 and 11 June). Investigators say Baranovskii's department sold demographic and economic information to companies and individuals and pocketed profits from materials printed in excess of official amounts. According to the Federal Security Service, approximately 20 statistical workers are implicated in the scandal, which has cost the government an estimated 1 billion rubles ($160 million). Some Russian media reported earlier this month that former State Statistics Committee Director Yurii Yurkov confessed to the charges against him, but Yurkov's attorney later denied those reports. BT SELEZNEV SAYS DUMA WON'T GIVE UP KURILS. State Duma chairman Gennadii Seleznev told a conference attended by Far East and Siberian legislators on 26 June in Khabarovsk that Russia has "no land to spare, the borders will not change," ITAR- TASS and Interfax reported. Seleznev singled out the islands in the Amur River and the four Kuril Islands, claimed by China and Japan, respectively. He also warned about the illegal immigration of Chinese and Korean citizens and called on legislators to take action against "all attempts to capture priceless Russian territory and resources." With regard to speculation that Russia may "transfer the Kuril Islands to the jurisdiction of Japan," Seleznev said there is "no foundation" to that speculation, adding that the Duma is agreed that this will not happen. BP CAN 'MIR' LAST TILL YEAR'S END? ITAR-TASS and Interfax on 26 and 27 June reported that with approximately six months left before the "Mir" space station is shut down, there may not be sufficient funds to keep it running for that period. The managers of "leading aerospace industries" sent a letter to Prime Minister Kirienko on 26 June warning that if the station's financial situation does not improve, "it will be necessary to liquidate" the station. It is also impossible to leave "Mir unmanned as it may then make an uncontrolled descent to Earth. Interfax quotes an unnamed source from the Energiya aerospace corporation as saying that station designers "are prepared to announce they claim no responsibility for the effects of an unsanctioned descent." The station's next crew is is scheduled to arrive on 3 August. BP DUMA'S AMNESTY FOR DESERTERS TAKES EFFECT. An amnesty for army deserters adopted by the Duma on 19 June went into effect on 24 June, "Kommersant-Daily" reported. The resolution applies to deserters and draft evaders who left military units before 25 June 1998 and who turn themselves in by 24 December 1998. Lyubov Kuznetsova of the Committee of Soldiers' Mothers criticized the amnesty, arguing that investigative organs might interpret the measure as applying only to veterans of the Chechen war. The amnesty replaces a partial amnesty implemented by the Military Prosecutor's Office in cooperation with the Committee of Soldiers' Mothers (see "RFE/RL Newsline," 27 March 1998). Since March, approximately 6,000 deserters have returned and now serve in different units; of those, 2,000 have been cleared of criminal charges owing to "difficult conditions" faced in service. An estimated 10,000 deserters remain at large, and many are forced to commit crimes to survive. BT MAYOR OF OIL-RICH TOWN GUNNED DOWN. Vladimir Petukhov, the mayor of Nefteyugansk (Tyumen Oblast), was shot dead as he was walking to work on 26 June. The local branch of the Federal Security Service arrested two men the same day but gave no details about the suspects. Several Russian newspapers reported on 27 June that Petukhov had long clashed with the management of the Yukos oil company, whose subsidiary, Yuganskneftegaz, is the major employer in Nefteyugansk. The press service of the Rosprom-Yukos group has suggested that Petukhov was killed in connection with embezzlement from the local budget, "Kommersant-Daily" reported. Police are also investigating whether the killing is linked to an alleged conflict with Chechen residents over control of a retail market. Speculation in the ITAR-TASS news agency focused on the last scenario. ITAR-TASS deputy director Leonid Nevzlin worked for Rosprom-Yukos before joining the news agency last September. LB CONSTITUTIONAL COURT CHAIRMAN AMBIVALENT ON CHECHNYA. Marat Baglai told journalists on 26 June that the Constitutional Court is unlikely to review the constitutionality of the state of emergency imposed in Chechnya even if requested to do so, Interfax reported. Baglai admitted that the Russian Constitution empowers only the president to declare a state of emergency. He said that the court "proceeds on the assumption that Chechnya is a subject of the federation," but he added that "its status has certain peculiarities that are not yet clear." Chechen President Aslan Maskhadov declared a state of emergency on 23 June, arguing that tough restrictions are imperative in order to bring crime under control. LF LEBED, STEPASHIN COMMENT ON NORTH CAUCASUS. Krasnoyarsk governor Aleksandr Lebed told Interfax on 28 June that it is the shared responsibility of the Russian president and regional governors to resolve conflicts in the North Caucasus. He accused the federal authorities of ignoring 30 potential conflict areas in the North Caucasus, adding that if those conflicts erupt, they could destroy the Russian economy and spark civil war. Speaking in St. Petersburg on 27 June, Interior Minister Sergei Stepashin said that his ministry does not plan to send additional forces to the North Caucasus but aims to coordinate the activities of its troops in the region more closely with the Defense Ministry and Federal Security Service. LF CONFLICTING REPORTS ABOUT KIDNAPPED RUSSIAN ENVOY. In an interview published in "Noviye izvestiya" on 26 June, acting Chechen Prime Minister Shamil Basaev said that the abductors of Russian presidential envoy to Chechnya Valentin Vlasov have demanded $5-6 million for his release. But former Russian Security Council Secretary Ivan Rybkin told Interfax the next day that he believes Vlasov may be set free without any ransom being paid. Vlasov was kidnapped near the border between Chechnya and Ingushetia on 1 May. His whereabouts are unknown. LF PROTESTS IN NORTH OSSETIA. Between several hundred and several thousand people participated in demonstrations in the North Ossetian capital, Vladikavkaz, and two nearby villages over the weekend, Interfax and Caucasus Press reported. Participants called on the North Ossetian leadership to prevent further reprisals against Ossetians by Ingush and protested the murder on 26 June in the village of Sunja of two Ossetians. The murderers are believed to be Ingush. Participants at the 28 June protest in Vladikavkaz also called for the creation of an Ossetian national guard to protect the local population. LF TRANSCAUCASUS AND CENTRAL ASIA GEORGIAN PARLIAMENT SPEAKER WARNS OF 'CATASTROPHE.' Speaking on the last day of the spring parliamentary session, Zurab Zhvania warned that Georgia is headed for "catastrophe" and that he may resign if the country's leadership does not substantively change its present policies, RFE/RL's Georgian Service reported on 27 June. Zhvania did not specify the nature of the changes he considers necessary. Opposition parties have intensified their criticism of Georgian President Eduard Shevardnadze following the fighting in Abkhazia in late May, which led to the exodus of some 35,000 ethnic Georgians from the region. LF ARMENIAN FOREIGN MINISTER WANTS KARABAKH TALKS TO RESUME. Vartan Oskanian told journalists on 26 June that adverse international reaction to his recent remarks on Karabakh (see "RFE/RL Newsline," 19 and 24 June 1998) is the result of pressure by Azerbaijan on the international community, Noyan Tapan and RFE/RL's Yerevan bureau reported. Oskanian pointed out that he had proposed direct talks between Yerevan, Stepanakert, and Baku but that Azerbaijan ignored that offer. Oskanian added that Armenia sets no preconditions for a resumption of talks and that Azerbaijan should refrain from doing so in order to break the present deadlock in negotiations. A French Foreign Ministry spokesman told the Armenian ambassador in Paris on 25 June that France "regards negatively" Oskanian's statement on the possibility of reunification between Armenia and the unrecognized Nagorno-Karabakh Republic. LF CENTRAL ASIAN PREMIERS SIGN ACCORDS IN BISHKEK. At an energy summit in Bishkek on 26 June, the prime ministers of Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan signed an agreement on further economic integration between their countries, RFE/RL correspondents reported. They also signed accords on an inter-governmental commission dealing with economic integration, on joint scientific-technical programs, on guaranteeing sanitary conditions in the region, and on providing medical services to one another's citizens. Documents on forming a hydro-power consortium and integrating the four countries' energy systems will be signed at the next meeting in Astana, Kazakhstan, at the end of September. BP TAJIKISTAN CELEBRATES ONE YEAR OF "OFFICIAL PEACE." Tajikistan celebrated the "Day of National Unity" on 27 June, one year after the signing of the Tajik Peace Accord in Moscow, ITAR-TASS reported. In a speech on nationwide radio the previous day, Tajik President Imomali Rakhmonov called the accord " an important and valuable document which has entered the history of the Tajik people." The same day, 100 members of the United Tajik Opposition (UTO) based in the Kofarnikhon and Romit Gorge areas were sworn into the Tajik army. Meanwhile, in an interview in the 26 June edition of "Krasnaya Zvezda," UTO leader with Said Abdullo Nuri praised the peace process in Tajikistan and said Tajikistan will maintain good relations with Russia. He described the presence of Russian border guards in the country as "a necessity." BP NAZARBAYEV TO GO TO MOSCOW. The Russian presidential press service on 27 June announced that Kazakh President Nursultan Nazarbayev will be in Moscow on 6-7 July, ITAR-TASS reported. Yeltsin was scheduled to visit Kazakhstan beginning 30 June for meetings with the heads of the CIS Customs Union and to review the five-country CIS-China border treaty with the leaders of the signatory countries. Russian Foreign Minister Yevgenii Primakov will go to Kazakhstan instead of Yeltsin. Many of the documents Yeltsin was to have signed in Almaty on Russian-Kazakh relations will be brought to Moscow for signing there. According to ITAR-TASS, they include a treaty of "eternal friendship and alliance for the 21st century" as well as an agreement on delimitation of the northern Caspian Sea bed. BP WORLD BANK GIVES $28 MILLION CREDIT TO UZBEKISTAN. The World Bank has extended a $28 million loan to Uzbekistan to support the privatization process, ITAR-TASS reported on 26 June. The loan will be used to provide consulting services to increase profits and production efficiency, help privatize large government enterprises, and develop market capital. The total cost of the project is put at $47.7 million. The Uzbek government will pay the difference of $19.7 million. BP END NOTE OIL PRICE DECLINE FAILS TO DAMPEN AZERBAIJAN'S RECOVERY by Michael Wyzan The Azerbaijani economy was one of the best performers in the CIS in 1997 and continues to hold that position this year. The prices that Azerbaijan receives for its oil have been declining steadily, falling from $20.10 barrel in the first quarter of 1997 to $13.40 a year later. So far, however, this decline has not had a significant adverse effect on the economy. The first place to look for the effects of the price decline is in the state budget. Indeed, during the first three months of this year, oil revenues fell by 8.3 percent compared with the same period last year, accounting for 43 percent of total revenues (52 percent in 1997). But total tax revenues were more or less unchanged, as the authorities were able to improve tax collection. Unusually low oil prices are nonetheless expected to persist at least until the end of this year and the government is discussing with the IMF ways to cut expenditures, especially social ones. Local economists point out that it would be better to extract more taxes from illegal importers--who often have close relations with state officials--than to cut social benefits. Foreign direct investment (FDI) topped $1 billion in 1997, and the 10 biggest oil contracts, which typically run for 30 years, entail investment of $33-34 billion. But despite its oil wealth and the large inflow of foreign capital, Azerbaijan remains impoverished. The average monthly wage in the fourth quarter of last year was only $36, and households currently spend about 80 percent of their incomes on food, beverages, and tobacco, compared with 61 percent when the country gained independence. Another reason why the fall in oil prices has had modest effects on the country is that annual oil production is only about 10 million metric tons, compared with 21 million tons in the mid-1960s and to an expected 50-60 million tons by 2005. In 1997, oil export revenues were only $480 million, less than half of FDI that year. Accordingly, for the next few years, low oil prices will have a big impact on the economy only if they slow down or discourage FDI, either by making oil companies more pessimistic or because they simply do not have the funds to invest. So far, there are no signs of a slackening of investment activity. As recently as 2 June, Azerbaijan signed three new production-sharing agreements worth $4 billion with major oil companies. Last year's strong economic performance seems to be continuing this year. In 1997, Azerbaijan's GDP grew by 5.8 percent, faster than all CIS member states, except Belarus, Georgia, and Kyrgyzstan. GDP growth accelerated further to 8.5 percent during the first four months of 1998. Industrial production, however, remains flat, rising by only 0.3 percent last year and increasing by just 0.4 percent during January-April 1998. Nonetheless, the oil sector is doing well so far in 1998. After falling from 12.5 million tons in 1990 to 9 million in 1997, first-quarter production--at 2.24 million tons--was well ahead of the pace necessary to attain the 10.1 million tons targeted for 1998. Inflation has all but disappeared, with consumer prices rising by only 0.4 percent in 1997 (on a December-to- December basis) and falling by the same percentage during the first quarter of 1998 compared with the same period last year. These are the lowest figures among transition countries. Low inflation has resulted largely from tight fiscal and monetary policy: budget deficits in the last two years have been under 3 percent of GDP and heavily financed by IMF credits. Another reason for the low level of inflation is that the manat has been appreciating against the dollar. Since reaching 4,440 manats to $1 at the end of 1995, the exchange rate strengthened to 3,806 at the beginning of June. An appreciating currency reduces inflation by making imports cheaper, other things being equal. Such an appreciation would generally raise concerns about potential balance-of-payments imbalances. Indeed, in 1997, Azerbaijan had a current account deficit exceeding $915 million, a very high 29 percent of GDP. Much of that red ink was accounted for by a trade deficit of $567 million. However, the current account deficits have been more than compensated for by capital account surpluses. In 1997, that surplus was $1.2 billion, 87 percent of which was generated by FDI. Current account deficits are likely in the next few years, since imports of oil-related equipment and services will far exceed exports of crude oil. In the medium term, Azerbaijan will need to worry less about these deficits than about the effects of capital inflows, which will likely keep the exchange rate strong, probably making it difficult to export other goods. The author is a research scholar at the International Institute for Applied Systems Analysis in Laxenburg, Austria. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Copyright (c) 1998 RFE/RL, Inc. All rights reserved. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx HOW TO SUBSCRIBE Send an email to email@example.com with the word subscribe as the subject of the message. HOW TO UNSUBSCRIBE Send an email to firstname.lastname@example.org with the word unsubscribe as the subject of the message. 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